Shari’a opinion in relation to the enforceability of Muslim's transfer of certain assets to a DIFC foundation :

Analysis

A. Islamic Shari’a opinion as per Federal Law No. 28 Issued on 2005/11/19 & ammendments On Personal Status and its amendments & Federal Law No. (5) of 1985 & ammendments On the Civil Transactions Law and its amendments.

A.1 Legaislation analysis
A.2 Application to the case

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A. Islamic Shari’a opinion

B.1. Legaislation analysis

“Islam is the official religion of the Union. The Islamic Shari’a shall be a main source of legislation in the Union”.

Article 7 became the core of the UAE Constitution and would be one of the most important legal influences of new legislation and Islamisation programmes of both federal and local initiative. According to Article 151 of the UAE Constitution, provisions of the

Constitution should prevail over all Constitutions of the member Emirates of the Union and their legislation. In case of any conflicting laws or inconsistencies with the superior laws of the Constitution the inferior laws would be rendered null and void.

Formal materialisation of Sharia Law in Federal legislation. One of the major achievement of the UAE government was the codification of the UAE’s Civil (Commercial) Code also known as the Civil Transactions Code in 1986. The Provisions and approximately 1,528 articles of the Civil Code were principally based on Islamic Sharia jurisprudence. In line with Article 7 of the Constitution, where Sharia has become a main source of legislation, the codification of UAE’s Civil Commercial Code reaffirmed this position. According to Article 1 of the Civil Code judgments should be based upon provisions of this law. If however no provision can be found in the Civil Code, judgments should be passed according to the Islamic Sharia. Article 1 Civil Code:

“If no provisions can be found there he should choose the most appropriate solution from the schools of Imam Malik, Hanbal or subsidiary from the schools of Iman Shafi’i and Hanafi. If the judge can’t find a solution either there, he should judge in accordance with the local customs of the Emirate concerned, if not conflicting with public orders or morals”.

Secondly the prominent position of the Sharia is also emphasized in Article 2 of the Civil Code where the judge should rely on the principles and sources of Sharia jurisprudence in its understanding and interpretation of the provisions of the Civil Code. Together with Article 3 of the Civil Code, these 3 Articles incorporates aspects of Sharia and Islamic jurisprudence into the framework of law governing the UAE.35 Furthermore Article 27 of the Civil Code prohibits the application of principles of law which are contrary to the Sharia or ‘public policy or morals’ in the UAE. Sharia Law differs from Common Law and Continental Law on several issues and approaches and intentions of the concerned parties by for example not relying legal precedents. In Business contracts this could lead to a diverse outcome according to which legal system prevails. Therefore it’s important to determine to what extend Sharia as a main source of legislation within the UAE as a Federal state implicates for both Muslim and non- Muslim business relations. As a main source of legislation, Sharia Law takes a prominent position within the UAE‘s Constitution. In Article 7 Sharia Law is considered to be interpreted as a material source, as part of the Islamic religion and part of historical and religious factors. Its influence is not determined by its power to implement mandatory injunctions by law and legal enforceability, but by its essence of making religious rules by morality. Therefore the Constitutional Clause of Article 7 is rather aimed at the legislature than at citizens or judiciary, as a main source of law to derive all legal rules from Sharia. The formal sources of Sharia Law can be found in the actual materialisation of legal rules provided by the legislator as performed in the actual texts of the Civil Code of 1986 in Article 1 to 3.36 The scope of Sharia Law is explained by the legislator in the texts of the Civil Code Law. Sharia Law has thereby gained binding legal force by the adaptation and formation of this specific legislation.

The Federal Courts and the Supreme Court’s application of Sharia Law.

The Provisional Constitution had provided in a unifying system of Federal Courts with both civil and criminal jurisdiction. The Federal Courts consist of the Federal Courts of First Instance, two Federal Courts of Appeal and the Federal Supreme Court. The Federal Courts of First Instance were established by the Federal state authorities in 1978. The legislator encouraged the local governments to transfer their judicial authority to the federal authority by providing for this in Article 1051 of the Provisional Constitution. This Article enabled the transformation of the local Civil Courts of the individual Emirates in a uniform federal judiciary. The Emirates of Dubai and Ras Al Khaimah did not transfer their judiciary to the federal authority, but the local governments of the Emirates of Abu Dhabi, Sharjah, Ajman and Fujairah responded to the request made and transferred their local jurisdiction to the federal judicial authority. As a result Federal Law No. 6/ 1978 was promulgated.38 According to Article 8 of this law the applicable sources of law for the Federal Courts were defined:

“The Federal Courts shall apply the provisions of the Islamic Shari’a, Federal Laws, and other laws in force, just as they shall apply those rules of custom and general legal principles which do not conflict with the provisions of the Shari’a”.

Article 8 implicates that Sharia Law as a source of law within the judiciary is very strong and preferred above federal legislation in case of searching for a provision or solution in particular cases. Only if Sharia Law isn’t able to provide such provision, federal laws and after that other sources of law are applied.

Next to the Federal Courts, the Federal Supreme Court was established in 1973 by Federal Law No. 10/ 1973 and is considered to be the highest judicial body in the UAE. As a federal constitutional authority it operates independently between the federal and local authorities. Federal Law No. 17/ 1978 has granted the Supreme Court an appellate jurisdiction of reviewing the Federal Appeal Court’s decision when a petition of cassation has been made against it. 39 Thus since 1978 the Federal Supreme Court had also become a Cassation Court. In exercising this new jurisdiction the Federal Supreme Court interprets ordinary laws of local and federal origin. Though decisions of the Federal Supreme Court are only comprised to a specific individual case and not legally binding on other decisions of the lower courts. But create a ruling precedent for the lower courts to follow. The Federal Supreme Court in exercising its jurisdiction of cassation is confined to Article 75 of Federal Law No. 10/ 1973:

“The Supreme Court shall apply the provisions of the Islamic Shari’a, Federal Laws, and other laws in force in the member Emirates of the federation conforming to the Islamic Shari’a. Likewise, it shall apply those rules of Custom and those principles of natural and comparative law which do not conflict with the principles of the Shari’a”.

This Article implicates that the Federal Supreme Court in deciding a pending case of lower courts, is bound to check the conformity of the law with Sharia. In practice the interpretation and understanding of a particular (local) law given by the Federal Supreme Court has widely been accepted and imitated by the lower courts in determining if local laws were compatible with Sharia.

The freedom of the individual Emirates in promulgating Sharia Law, the case of Dubai.

To consolidate the political authority of the federal state, the federal government alone has been given the undisputed right to exercise legislative and executive functions in an extensive line of important fields. The Provisional Constitution stipulates in Article 120 and 121 that the principle state affairs, authority and mandates of the UAE are under the jurisdiction of the central federal state. According to Article 122 of the Provisional Constitution, the areas of laws that aren’t specified in Article 120 and 121 are for the individual Emirate to regulate each within its own territory.

“Art. 122. The Emirates shall have jurisdiction in all matters not assigned to the exclusive jurisdiction of the Union in accordance with the Provisions of the two preceding Articles.”

So the individual Emirates maintained their autonomous status within the federation and were still able to promulgate their own laws and upheld their own court system. To enhance federal legislation and a federal uniform court system the UAE Constitution provided in provisions that could be used as a tool for creating a national identity and a uniform legal system.42 The Provisional Constitution has restricted the right of the local authorities to enact laws by two conditions. First of all local authorities shall not legislate in fields within the domain of the federal legislature. And secondly local laws shall not conflict with federal laws. If in any case such conflict should arise, the local law will become null and void. Responsibility for the examination of laws towards the conformity of the restrictions ordered by the Constitution and federal laws has been given to the Federal Supreme Court of the federal judiciary. So federal laws prevails over local laws in an attempt to achieve a unified legal system.

The Emirate of Dubai for example choose to remain its exceptional status within the federal Union and has its own judicial and legal court system that are independent from the federal judicial court system of the UAE (Ras Al Khaimah also has an independent court system), while the five Emirates of Abu Dhabi, Sharjah, Ajman, Fujairah and Umm Al- Quwain transferred their judiciary to the federal authority.The Dubai Courts were established in 1970, issued under the law entitled Formation of the Dubai Courts Law. This law specified the court system into the Courts of Personal Affairs and Civil Courts and established two degrees of litigation; the First Instance Court and Appeal Court. And furthermore underwent a series of amendments and replacements. The Dubai Courts Law divides the jurisdiction in Dubai into either the Civil Court or the Sharia Court. The law also provided in the need for the ruler to order the setting up of other courts and tribunals to try special cases, if the occasion and special circumstances required so.

The Sharia Court had been given exclusive and comprehensive jurisdiction in all cases and matters except for matters where the Civil Court was given jurisdiction. Article 10 of the Dubai Courts Law states:

“Art.10[…] the Shari’a Court shall have the right of adjudication over all individuals and all cases and matters except such as, according to the provision of this or other laws in force in the Emirate of Dubai, are reserved for adjudication by the civil court or other authorities.”

In 1988 the Emirate of Dubai had reached complete independence of its judicial system by establishing the Cassation Court. 46 The sources of law and jurisdiction of the Civil Court are defined by Article 13 of the Dubai Courts Law stating;

“Art. 13[…] (1) In cases or matters in which the right of adjudicating is conferred thereon by virtue of the provisions of Laws in force in the Emirate of Dubai. (2) In any case or matter or any prescribed kind of cases or matters delegated for adjudication therein by virtue of a Decree issuing from the Ruler from time to time. (3) In any case or matter prescribed by order of the Chief Justice to be transferred to it for consideration and decision.”

A Decree of 1970 had specified the Civil Courts jurisdiction in matters both criminal and civil related to the Traffic Law, the law regarding the issuing of cheques without balances, offences related to drugs, the Workmen’s Compensation Law 1965, contracts of insurance and financial banking transactions and personal affairs of non- Muslims. Article 14 of the Dubai Courts Law provides that the Civil Court should exercise its powers in accordance with;

“Art. 14 […] the Civil Courts shall exercise its power in accordance with; (1) The laws in force in the Emirates. (2) The provisions of Shari’a. (3) The rules of Customs and usage, provided the same be not in conflict with the laws, or public order or morals. (4) The rules of natural justice, law and equity.”

This means that the Civil Court shall first adhere to sources of secular laws of Dubai and if the court doesn’t find a provision it shall adhere to Islamic Sharia.

In the Dubai legislation is has been clear that Sharia Law takes an important position. The original jurisdiction of the Emirate has been given to the Sharia qadi. In those matters not expressly granted to the Civil Court, the Sharia Court has residuary jurisdiction. It will not only apply Sharia Law, but also the secular local law in both substantial and procedural matters. Only selective laws and decrees are subjected to the jurisdiction of the Civil Court. But if the Civil judge can’t come to a decision based upon sources of Civil Law, he recourses to the provisions of the Sharia. So in the Emirate of Dubai Sharia Law is kept in mind in both the Sharia and Civil Courts. Subsequently Dubai Law No. (2) of 1979 was issued for the formation of the Supreme Court of Appeal and Dubai Law No. (1) of 1988 was issued to constitute the Court of Cassation. However in 1992 the ruler of Dubai issued Dubai Law No. (3) of 1992 regarding the forming of the courts in the Emirate of Dubai, which replaced all previous laws and which brought together three courts under the umbrella of one law.

The Courts of Dubai were in addition advanced with the issuing of Dubai Law No. (3) of 2000, which established the Department of the Courts and gave the courts the authority to regulate the technical, financial and administrative departments of the court. In 2003 Dubai Law No. (1) was issued, which established the Department of Justice. This law united the Dubai Courts and Public Prosecution as well as the Judicial Inspection Authority. After that Dubai Law No. (6) of 2005 separated the Public Prosecution from the Dubai Courts again and renamed the Dubai Courts, as ‘Dubai Courts’ and restructured departments and remained so until today.

Dubai Law No. (3) of 1992 effectuated that the Dubai Courts consists of three (litigation) courts: the Court of First Instance, Court of Appeals and the Dubai Court of Cassation. The Courts of First Instance have the following sections; Civil, Criminal, Labor, Commercial, Real Estate and Sharia (Personal Status). The structure and stages of litigation are described in Article 31 of Dubai Law No. 3 of 1992 stating:

“The Courts shall comprise the Court of Cassation, the Court of Appeal and the Primary Court, being the Court of First Instance. The Court of Cassation is the highest court of appeal on matters of law in the Emirate of Dubai.”

The Dubai Court of Cassation applies similar laws and principles as the Federal Supreme Court of Cassation with the following exceptions. First of all the Dubai Court of Cassation supervises decisions of the lower courts of the Emirate of Dubai and acts as an appellate court in relation to these decisions. Secondly the Dubai Court of Cassation assures that the lower courts in the Emirate of Dubai apply both the federal laws of the UAE and the local laws of the Emirate of Dubai. And finally the judgments of the Dubai Court of Cassation have only persuasive effect to the courts of the Emirate of Dubai. The judgments have no direct binding effects on the Federal Courts or the Federal Supreme Court of Cassation of Abu Dhabi. Likewise the Federal Supreme Court of Cassation has no direct persuasive effect in the Dubai Court of Cassation. But it is only the Federal Supreme Court of Cassation, which has the exclusive privilege to determine federal constitutional matters, matters related to the UAE Constitution (of all Emirates) and disputes among individual Emirates.

The laws applied by the Dubai Courts are described in Article 4 of Dubai Law. No. (3) of 1992 stating:

“The Courts [of Dubai] shall exercise their powers on the basis of: the laws in force in the Emirate of Dubai; provisions of the Islamic Sharia; provisions of custom, unless these contradict the Law or public order or decency; the principles of natural justice, right and equity.”

According to Article 4 of Dubai Law No. (3) of 1992 the Sharia is positioned second after the local laws of Dubai. In those matters not explicitly granted to the Civil Courts, Sharia Courts have residuary jurisdiction. This means the Sharia Courts apply not only the Sharia Law, but also the local secular laws in both substantive and procedural matters. A similar situation is applicable to the jurisdiction of the Emirate of Ras Al Khaimah. Alongside its own and independent legal system, the Emirate of Dubai nevertheless applies the Federal Civil Procedures Law, Fed. Law No. 11 of 1992, and the Federal Law of Evidence in Civil and Commercial Transaction, Fed. Law No. 10 of 1992, in its Civil Courts. And with the enactment of the Federal Civil Transactions Law also known as the Civil Code in 1985, all courts in the UAE were required to apply the principles of Sharia in cases where no explicit legislative provisions exists. This has resulted in the situation where both federal and local courts further reinforce the mandatory provisions and principles of the Sharia. But to what extend the principles of the Sharia eventually would reach in practice had not been determined to the fullest as in the other Emirates, where federal legislation had harmonized the use and scope of Sharia. The federal Islamization programs had its effects on the neat dichotomy and internal hierarchy of both the federal and local judiciary. Federal empowerment of the domain of the Sharia and Islamic principles were set out to achieve uniformity of law, the judiciary and other legislative regulations throughout the UAE. At the same time on the local level the individual Emirates maintained a certain degree of autonomy and governance. The reflections of this policy can be seen both in the encouragement of Emirate governance and the modernization of the institutes of local administration as well as in the preservation of local tribal and customary laws. But in the end federal governance would overrule them all with its superseding powers, however the Emirates of Dubai and Ras Al Khaimah maintained the ability to determine their own local visions and legislation.

Dispute resolution; Islamic principles versus International Trade Standards. Federal Civil Code and Sharia principals versus DIFC and International Arbitration.

International Arbitration is a very popular legal solution for most (foreign) business parties. The majority of foreign parties shun Sharia Law and are very hesitant to choose for the Federal Civil Code regime, since the legal vagueness of how Sharia Law and International Arbitration relate to one another and whether Islamic principles will prevail or overrule other forms of legal dispute resolutions. As part of Dubai’s strategic vision to diversify its economic resources and to attract capital and investment in the region, the DIFC is established as an independent jurisdiction, and empowered to create its own legal and regulatory framework for all civil and commercial matters. In practice DIFC- registered companies can carry out their business activities, which includes a variety of financial sectors such as banking, brokerage services, capital markets, wealth management, re- insurance and Islamic finance. In case of civil and commercial disputes involving the DIFC, arising from a contract that has been concluded in the DIFC, or arising from an incident that has occurred in the DIFC, the DIFC Courts have exclusive jurisdiction following Article 5 of the Judicial Authority Law.74 The DIFC Courts are separate and independent of other courts in Dubai and the UAE. Judgments of the DIFC Courts of Appeal are final with no other legal remedy given to other courts in the UAE. In order to promote the DIFC independency from the UAE legal system, financial independency from the UAE government is guaranteed in accordance with Article 3 of Dubai Law No. 9 of 2004. Thus by the establishment of the DIFC, in theory a functioning independent and impartial legal enforcement framework to enhance foreign investors without the concern of local protectionism, exposure to local courts, legal proceedings in Arabic and the application of Sharia Law, was created.

‘Public Policy and Morals’ and the implementation of DIFC (Foreign) Judgments and Arbitration Awards.

So in the Emirate of Dubai a parallel legal system of both Sharia Law and Common Law exists side by side without intervention of both systems into one another’s legal proceedings. Article 7 (3) of the Judicial Authority Law states that the Dubai Courts shall enforce a DIFC Court judgment, order or DIFC (arbitration) award without undertaking the merits of the dispute, underlining the DIFC Courts independency. However Article 7 (2) of the Judicial Authority Law also states that DIFC judgments and awards ratified by the DIFC Courts, shall be enforced by the executive judge at the Dubai Courts when: “a) the judgment, award or order is final and is appropriate for enforcement; and b) the judgment, award or order has been translated into Arabic.” Under a) the wording that the judgement or award needs to be ‘appropriate’ makes the Dubai Court eligible to possible control over DIFC judgments and awards, when enforcement is sought in Dubai or in some other location of the UAE. Next to that avoidance of translating judgments in the Arabic language failed.

Another concern is the power of the Dubai Courts to review DIFC judgments and awards on the grounds of compliancy with UAE’s ‘public policy’ as a precondition of enforcement in Dubai. The DIFC Arbitration Law 2008 goes a step further and states in Article 41 that all awards of the DIFC are at risk of being set aside if incompatible with UAE’s ‘public policy’ even for awards destined for implementation in a third jurisdiction outside the UAE. ‘Public policy’ can be defined against the norms and traditions prevalent in the UAE, which also encompasses Sharia Law. This has been made clear in for example Article 6 of the Judicial Authority Law, where parties can choose explicitly a different legal system, which will apply DIFC Laws and Regulations unless they ‘conflict with the public policy and morals’. Article 8 and 9 of the DIFC Law No. 3 of 2004 on the application of civil and commercial laws clarifies this further. And should be viewed along with the provisions of Article 27 of the Federal Civil Code, where the application of principles of law which are contrary to the Sharia or ‘public policy or morals’ are prohibited.

Conclusion.

The position of Sharia Law in UAE’s legal system has historically been paramount and can still be determined through different branches and levels within its internal legal spheres. Law and Development in the UAE’s legal system starts with Article 7 of the UAE Constitution, where Sharia Law is positioned as a main source of law. But this can be interpreted as a material source of law and should be viewed in line with the ‘public policy and morals’ of the nation and is aimed at the legislator for promulgating new laws. One of these laws has been he Federal Civil Code, where Sharia Law as a formal source is represented. So the Civil Code has been shaped and ruled completely by principles of Sharia jurisprudence and the segregation of Muslims and non- Muslims as previously been the legal practice under British extra- territorial jurisdiction ended indefinite in 1986. Leaving little room for other forms of legal jurisdictions or dispute resolutions for business conduct between both groups. Since a uniform legal system was established Islamic commercial principles were used for both Muslim and non- Muslim business relations and trade. Various issues with regard to the practical application of Sharia doctrines in Islamic financial or other business related transactions, such as riba and gharar, which can be incompatible with modern commercial contract laws, however left lacunae in the legal practice. Due to the increase in economic development in especially the Emirate of Dubai, the need implicated by foreign investors and companies for new legal remedies such as international dispute resolutions was reason for Dubai to implement in its Financial Free Zones special International Arbitration standards such as the legal institutions of the DIFC and the DIAC. As has been witnessed in the previous paragraphs the Sharia has taken a central position in both federal and local jurisdiction, but the drive for success and economic prosperity made concessions and easements for laws based on the Sharia and on the Islamic commercial principles of riba and gharar. Where the local Emirate became the executive arm for federal Sharia based principles, the economic diversification process provided a certain level of freedom on the local level for the Emirates to conduct business and to promulgate their own legislation in the Financial Free Zones. In this sense the local Emirates had demanded the autonomy to what extend they would grant exclusive rights to commercial activities and (foreign) investments conducted in their respective Emirate. And although federal laws were promulgated to create a legal consenting framework for new commercial laws, the local Emirates retained the right to define the scope of these laws. Which resulted in a diverse execution of laws throughout all the Emirates and in theory the decline of Sharia based laws in areas of International business such as the Financial Free Zones. Creating a new domain for non- Muslim trade and led to unintentionally segregation of Muslims and non- Muslims again, while both groups were able to access and use UAE’s legal system to the fullest. Nevertheless the enforcement of DIFC judgments and Arbitration awards via the Dubai Courts opened the backdoor for Sharia to enter. This through the definition of ‘public policy and morals’ as a precondition for enforcement as stated in the Judicial Authority Law of the DIFC. In the end its Sharia Law’s supremacy that determines UAE’s Law and Development.

A.2 Application to the current cases

A.2.1 Shariaa opinion in case of avoinding inheritance system in Islam

If a Muslim person’s approach could aims to circumvention in inheritance, and definitly it lackes to legitimacy from islamic sharia prespective, by distinguishing one of the heirs with indirect gift and/or circumvention by selling the testator of the legacy as a sham sale to one of the heirs….ect, the inheritance system in Islam is based on a devotional basis, and all tricks to omit a duty, or to commit a forbidden something, such as invalidating a Muslim’s right – invalid does not allow money, just as the testator sins by distinguishing one of the heirs with a gift or another, and it is not valid for the patient to acknowledge the death of one of the heirs unless he comes with evidence.

A.2.2 Domestic Laws in UAE

We set out below certain considerations that should be taken into account in relation to the endowment of assets to the foundation by way of a gift. Considerations to take into account:

A.2.2 Domestic Laws in UAE

We set out below certain considerations that should be taken into account in relation to the endowment of assets to the foundation by way of a gift. Considerations to take into account:

A.2.2.1 UAE Civil Code

Under the UAE Civil Code regading the gift articles 614 till 653 if the client gift to his daughters will satisfy the said Elements of and conditions for the effectiveness of a gift, set forth and definded in the said articles then it shall be deemed correct and legal.

Although both a gift and a donation are generally made without any consideration, the UAE Civil Code permits the donor to set out certain conditions that the done should satisfy in order to be entitled to receive the gift. If the gift being made comprises real estate assets then such gift may only be effected if the conditions required for the transfer of ownership over such real assets are satisfied in accordance with the provisions of the UAE Civil Code.

A.2.2.2 UAE Personal Status Law

In the event the founder wishes to endow all or, a substantial part of, his assets to a foundation by way of a gift then it would be advisable that such endowment is structured in a manner which complies with certain key provisions of the UAE Personal Status Law No. 28 of 2005 (UAE Personal Status Law) which addresses a number of Shari’ah related matters.

Under the UAE Personal Status Law article 361 :

“shall be considered void, every fraud to the provisions governing inheritance by way of sale, donation, testament or other dispositions”.

Accordingly, the UAE Courts would normally examine the underlying intentions and objectives at the time of making the gift to the Foundation to ensure that the rights of the relevant parties are preserved in accordance with the provisions of the UAE Personal Status Law and the concepts and Islamic inheritance rules under Shari’ah.

For example, if as a result of the gift being made during the lifetime of the donor, the heirs would be deprived of their rights then this might be seen by the Dubai Courts as a breach of the Islamic inheritance rules under the UAE Personal Status Law irrespective as to whether this is inconsistent with the provisions of the DIFC Foundations Law. It remains to be seen how the joint committee formed by the Dubai Courts and the DIFC Courts will address such potential issues where there is a potential conflict of jurisdiction between Dubai Courts and the DIFC Courts. We understand that this specific issue is currently being addressed and expect that the outcome will ensure that the objectives of the DIFC Foundations Law will be preserved and dealt with accordingly between the relevant UAE Courts.

B.2.3 Jurisprudence

Nevertheless, there is no clear definion to the fraud to the provisions governing inheritance or circumvention in inheritance in judicial precents of Dubai Cassation Court except some pricipals had been set for general provions as follows:

1. Rule No. 59 included in the ruling of the Court of Cassation – Dubai dated 04-11-2012, In Appeal No. 2011/407 Real Estate:

” It is established that the principle of the deceased’s declarations is that they are considered valid and binding on his heirs until they establish evidence of their invalidity.”

2. Rule No. 64 included in the ruling of the Court of Cassation – Dubai dated 04-05-2003, In Appeal No. 2002/313 :

“Wherease as per Article (1261) of civil code in UAE stipulates that: (When a person disposes of a property in favor of his heirs, reserving at the same time the possession and the enjoyment of this property during his lifetime, the disposition is deemed to be a testamentary disposition and, in the absence of any evidence to the contrary, shall be governed by the rules applicable to wills.), It indicates that the basis for implementing the ruling of this text is that the decedent’s disposal of the property is issued for the benefit of one of his heirs. If the disposal is issued to a third party, there is no place for implementing its ruling even if the deceased retains possession of the property disposed of and benefits from it throughout his life, then the provisions of the will do not apply to him.”

Howver, this principal may not applied to the case if the disposing of the assests will be during life time without reserving either possession or interests of the assessts.

3. Rule No. 182 included in the ruling of the Court of Cassation – Dubai dated 12/17/2006, In Appeal No. 2006/182 Civil Appeal

” The basic rules of inheritance that are based on conclusive texts in Islamic law. It is considered part of the public order for Muslims, whether nationals or foreigners, and it is not permissible to violate it. The meaning of that. It is not permissible for the national judge to give priority to any foreign law, considering that it conflicts with the basic rules of inheritance in Islamic law, if the inheritor is a Muslim.”

Definitaly, Islamic Shareaa rules shall be applied after death as long as the decedent is muslim regardless he is local, foreigner, his heirs request their national law to be prevailed or not.

B Opinion as per DIFC laws & Regulations ” FOUNDATIONS LAW – DIFC LAW NO.3 OF 2018 “

On 13 January 2021 the DIFC Court of Appeal handed down its first ever judgment under Article 5(B)(1)(b) of the Judicial Authority Law, being its exceptional advisory jurisdiction to hear and determine requests by the Chief Justice, upon the application of any DIFC Body or Establishment, for the interpretation of DIFC laws or DIFC regulations.

In the proceedings, bearing the DIFC Claim No. CA-002-2020, the Dubai International Financial Centre Authority (‘DIFCA’) sought answers from the Court of Appeal to 13 questions relating to how the DIFC Trust Law and the DIFC Foundations Law impact persons or property in jurisdictions that do not recognise trusts or have no equivalent provision for statutory Foundations.

In accordance with the consultative character of the reference, the Court of Appeal (Chief Justice Zaki Azmi, Justice Robert French and HE Justice Ali Al Madhani) invited and benefited from participation in the proceedings by representative bodies and legal practitioners active in private client and wealth management structures in the UAE.

The common thread underpinning the questions was the concern to elucidate how common law trusts and DIFC Foundations, as recognised or governed by DIFC law, could be reconciled as a matter of practicality with Shari’a law rules and principles on inheritance forming part of onshore UAE law and other jurisdictions in the Middle East and further afield.

The interest of DIFCA in bringing the case, as noted in the judgment, is that one of the objectives of the DIFC from its inception has been to provide a platform, comparable to other international financial centres, from which family wealth can be administered, protected and transmitted. In this regard, family wealth makes up a significant part of the Gulf economies, and experience has shown that common law trusts are frequently at the heart of successful wealth management structures and succession planning in other international centres. Yet private client advisors in the Gulf region are often unfamiliar with or uncertain about the compatibility of common law trusts, or more recently about the compatibility of UAE Foundation structures, with local laws.

Against this background, the Chief Justice was persuaded, and the DIFC Court of Appeal accepted, that its interpretive judgment on the questions asked could assist in addressing a relative dearth of precedents and guidance on trusts and Foundations in its existing jurisprudence.

In common with other civil law jurisdictions in the Middle East, until recently UAE law did not recognise the common law trust, but it has long provided for a similar endowment structure in the Waqf (plural Awqaf), which traditionally has been used for charitable purposes and occasionally to hold shares in a local company. Awqaf are the subject of specific laws in each of the Emirates of Dubai and Sharjah as well as at UAE national level and in a preponderance of GCC jurisdictions.

Notwithstanding, foreign-established trusts are frequently used by Muslim and non-Muslim settlors alike to hold UAE assets, for example shares in local companies or real estate, and for this purpose, under the DIFC Trust Law, corporate trustees established in the DIFC are able to own UAE assets. This freedom is subject only to complying with rules presently restricting: (i) foreign ownership of limited liability companies (LLCs), which at the time of writing are being abolished or substantially eased in respect of the majority of sectors of commercial activity; and (ii) the current practice of the regulators of land departments in the various Emirates that results in the need to engage with them to obtain specific approval for trust structures holding land.

The conflict of laws position under the DIFC Trust Law, and also under the equivalent ADGM regime, is that trusts will not be voidable by reference to any foreign law. This extends to Shari’a law, which does not form part of DIFC or ADGM or other UAE financial free zone law. However, a difficulty arises in cases where a local UAE court is called upon to recognise a distribution of assets under a DIFC trust made for succession planning when the distribution is contrary to mandatory Shari’a principles, particularly those codified in the UAE Law of Personal Status.

This specific difficulty is not overcome by the enactment at the end of 2020 of the UAE Trust Law, which introduces, for the first time in UAE law, a sui generis concept of trust drawn from common law concepts but incorporating some features typical of civil law property rights. In particular, the UAE Trust Law does not apply to trusts created in any UAE financial free zone, and for the purposes of foreign trusts the law stipulates that any foreign trust that is inconsistent with mandatory provisions of public policy shall not be enforceable.

Against this backdrop, the newly emergent statutory Foundation has emerged as an alternative mechanism for ensuring succession of private wealth in the UAE. In particular, Muslim founders can establish a Foundation under DIFC law, or under ADGM law, or under the equivalent regulations of the RAK International Corporate Centre (‘RAK ICC’). A Foundation is an independent legal entity with a distinct personality, separate from the founder. This allows the Foundation to enter into contracts or hold assets in its own name. It is governed by its charter and by-laws, reflecting the desires of the founder, and it is managed by a council composed of several members appointed by the founder (who in turn may be supervised by a guardian appointed by the founder).

In some important respects, a Foundation is more rigid than a trust: the use of the assets for commercial purposes is not possible for Foundations (although they can hold shares in a commercial company), but is allowed for trusts; furthermore, a Foundation must be registered and usually will have an unlimited lifespan, whereas trusts are not registered and may be limited in time.

Notwithstanding, Foundations present founders with additional flexibility, when compared to a trust structure, including notably as to the continuing powers and influence of the founder and the operational advantages of being a distinct legal entity that owns assets and enters into contracts in its own name. In a trust relationship, by contrast, the trustee legally owns the assets and enters into contracts on behalf of the beneficiaries; further, the use of the assets for the benefit of beneficiaries is optional for Foundations, whereas it is mandatory for a trust other than a charitable or purpose trust.

It is fair to say that these advantages, and the growing understanding by government authorities and land/planning departments in recognising and facilitating the holding of property by Foundations, have led to a gradual but steady increase in the use of foundations in family wealth holding structures in the Middle East. Often these are linked with associated special purpose vehicles and funds’ structures established under DIFC or under ADGM law or indeed under other international offshore financial centre laws.

It remains to be seen how the new UAE Trust Law will impact the choice of trust structures in the UAE to manage private wealth. As a general proposition, the introduction of the law will assist in assuring clients of what was already known to specialist practitioners, namely that the creation or maintenance of trust structures to manage family assets gives rise to no conflict with UAE law or UAE public policy, including any conflict with Shari’a principles forming part of UAE public policy, save in the specific context where mandatory rules on Shari’a inheritance constrain the inheritance ratio of trust property which was settled on the trust during the lifetime of a deceased Muslim settlor and is required to be distributed on his or her death.

As appears from the summary and analysis that follows, much the same can be said for the advisory judgment of the DIFC Court of Appeal in Case CA-002-2020, in which the Court took the opportunity to clarify that many perceived conflicts in this area between UAE law and public policy, on the one hand, and DIFC law (and common law) on the other, are more apparent than real.

Question 9: Will the transfer of property by a Muslim to a Trust or Foundation necessarily attract the operation of Article 361 ofthe Law of Personal Status of the United Arab Emirates?

The answer proposed to Question 9 by DIFCA is:
“Nothing in the Trust Law or Foundations Law has the effect that such a transfer will necessarily attract the operation of thatArticle.”

DIFCA acknowledged that the jurisdiction of the Court is limited to the interpretation of Articles of the Laws of the DIFC. Itsproposed answer to the question was formulated to try to bring it within jurisdiction.

DIFCA referred to the legislative authority of the DIFC in relation to civil and commercial laws derived from Article 121 of theUAE Federal Constitution, the establishment of Financial Free Zones provided for by Federal Law No 8 of 2004 Regarding theFinancial Free Zones, and Federal Decree No 35 of 2004 which established the DIFC. DIFCA also referred to Law No 9 of 2004 inrespect of the DIFC providing for the President to submit proposed Centre laws to the Ruler for enactment and to issue Centreregulations. The legislative scheme for the law making power of the DIFC and corresponding provisions which established the ADGMwere said necessarily to proceed on the basis that the Trust Law and the Foundations Law (and their ADGM counterparts) are civiland commercial laws for the purposes of Article 3(2) of Federal Law No 8 of 2004 Regarding the Financial Free Zones.

The UAE forced heirship provisions apply only to property owned by a deceased person who is either a UAE national or aMuslim at the date of death or during any applicable “death illness”. That term is said to be broadly equivalent to the English conceptof testamentary incapacity. One third of the estate is not subject to Shari’a forced heirship in any event. It was submitted by DIFCAthat a Muslim can make a gift of any property during his or her lifetime provided that it is an absolute gift. As a result, endowment of aFoundation or trustees with assets by a healthy founder or settlor is permissible as recognised in National and Emirate laws.

Reference was then made in the submissions to Article 361 of the Law of Personal Status, which provides:

“Article 361
Shall be considered void, every fraud to the provisions governing inheritance by way of sale, donation, testament or otherdispositions.”

This is the English translation of Article 361 on the UAE Ministry of Justice website. DIFCA submitted that precisely how thatArticle (or its Arabic version) would be interpreted in a UAE court outside the DIFC, was not within the scope of the presentapplication. Court acknowledged that Question 9 does not seek an interpretation of any specific provision of the Trust Law or theFoundations Law but asks rather whether anything in either of those laws is inimical to Shari’a inheritance rules. This was said to bean important point that arises from time to time in practice when advising Muslim clients on the establishment of DIFC trusts orfoundations.

Despite the breadth of the question, The Court submitted that an answer can and should be given but not an answer to the questionposed. Effectively what ATCO then submitted was that the Court should reframe the question to bring it within jurisdiction. Itsubmitted that the answer should not, and need not, say “nothing in the Trust Law or Foundations Law” but should be focussed onparticular provisions identified by the Court as relevant to the issue. 180. It then made submissions that a good starting point for Question 9 would be Article 9(2) of the Trust Law, by which the terms ofa trust prevail over any provision of the Law save those formal and fundamental matters enumerated at Article 9(2)(a) to 9(2)(k).Mention could be made in this context of the requirement in Article 9(2)(c) and Article 35(1) that a trust and its terms and purposescannot be contrary to “public policy in the DIFC” which it was said, does not overlap with or reflect Shari’a law rules of inheritance.

No similar provision is contained in the Foundations Law because the legal basis for Foundations is necessarily founded on theLaw itself. Nevertheless, Article 12(1)(b) also provides that a Foundation’s objects must not be contrary to DIFC public policy. Ofgreater relevance Articles 13 to 16 of the Foundations Law were said to carefully distinguish between heirship rights in relation to theproperty of a living person and inheritance rights upon death. Article 13(2)(c) provides in terms that the application of DIFC Law inregard to a Foundation or in regard to any disposition of property to or by a Foundation shall not validate any testamentary trust ordisposition which is invalid according to the laws of the testator’s last domicile.

DIFCA in its submissions in response noted and agreed with ATCO’s analysis of the practical issues raised by the interplay ofthe DIFC Laws, the subject of the question. The question is what further elucidation the Court should provide. DIFCA submitted thatthe issues raised in ATCO’s submission would be best resolved by adding to its proposed answer the following:

“In particular:

a. Shari’a inheritance rules do not form part of the public policy of the DIFC within the meaning of the Trust Law or theFoundations Law;

b. Article 361 of the UAE Law of Personal Status does not form part of DIFC Law.

c. In the case of a DIFC trust, the terms of the trust may or may not conflict with Shari’a inheritance rules. Whether it does so willdepend on the terms of the trust, and the Trust Law has no impact on the question.

d. A settlor wishing to establish a trust that will respect Shari’a inheritance rules in its operation will be able to do so.

e. No issue arises as regards the validity of prior dispositions to a trustee to be held by the trustee on trust during the lifetime ofthe deceased (apart from any period of death illness); and

f. A testamentary disposition to trustees of a trust or a Foundation contrary to Shari’a inheritance rules raises no issue under theTrust Law or the Foundations Law. It may however raise an issue of foreign law (including the law of other parts of the UnitedArab Emirates) where that law is the applicable law governing the validity of the disposition and includes Shari’a inheritancerules because Article 13(2)(c) of each of the Trust Law and the Foundations Law provides that DIFC law shall not validate anytestamentary trust or disposition which is invalid according to the laws of the testator’s last domicile.”

The nature of that proposed answer, with respect, throws up the problem in inviting the Court to make a general statementabout the interaction between the Trust Law, the Foundations Law and the Law of Personal Status. The jurisdiction of the Courtunder Article 5(B)(1)(b) of the Judicial Authority Law is limited to the interpretation “… of any article of the DIFC Laws and DIFCRegulations …”. The question is not framed to address that jurisdiction and the proposed answer, in its original form or asreformulated by DIFCA, would take the Court well beyond the boundaries of that jurisdiction.

Answer: The Court declines to answer Question 9.

Question 12: Whether, if a Muslim settlor expressly desires to establish a trust which is Shari’a compliant, but inadvertentlyincludes in the trust instrument a provision which is not Shari’a compliant, the Court can:

(a) pursuant to Articles 24(2)(c) and 25(2)(a) of the Trust Law determine that the disposition shall have effect on terms whichare Shari’a compliant?
(b) pursuant to Article 40(8)(a) of the Trust Law vary the terms of the trust so that they are Shari’a compliant.?

DIFCA’s proposed answer is:
“Under Articles 24(2)(c) and 25(2)(a) of the Trust Law the Court can on the application of the settlor or his personalrepresentatives set aside the disposition but cannot vary it. Under Article 40(8)(a) of the Trust Law the Court can vary the termsof the trust so that it is Shari’a compliant.”

DIFCA reformulated its proposed answer to read:
“In both (a) and (b) above, the Court has power in appropriate circumstances to make such Orders so as to give effect to theSettlor’s true intentions.”

DIFCA submitted that the procedures in Articles 24 and 25 and in Article 40(8) are alternatives. Under Articles 24 and 25 adisposition can be set aside at the instance of the settlor. Under Article 40(8)(a) it can be rectified. DIFCA submitted that for presentpurposes it is immaterial whether there are distinctions between the approaches. The law sets out the basis on which the Court canact. DIFCA submitted that in the result a Muslim settlor desiring to make a Shari’a compliant disposition to trustees can haveconfidence that if, by inadvertence in drafting the necessary documentation, the disposition would not be Shari’a compliant, it couldbe either rectified or revoked.

DIFCA noted that the Foundations Law, in Articles 47 to 49, makes equivalent provisions in connection with setting asidedispositions resulting from mistakes to those in Articles 24 and 25 of the Trust Law. While Article 41(4) of the Foundations Law is notas precisely formulated as Article 40(8)(a) of the Trust Law, rectification at the request of the Founder is possible.

The Trust Law does not of itself require that dispositions creating trusts orunder trusts or the terms of trusts be Shari’a compliant. However, where a settlor, wishing to make a disposition that is Shari’acompliant, or to create a trust that is Shari’a compliant makes a mistake, then there is nothing in Articles 24, 25 and 40 that wouldpreclude the Court from avoiding the disposition or varying the trust as the case may be to give effect to the settlor’s true intentions.