legal guide09.indd - Islamic Finance News

Shariah Litigation & Arbitration in Malaysia (continued..)
banking disputes and they may even become the
preferred methods.
Other jurisdictions
It would not be possible to discuss the dispute
resolution process in other jurisdictions, but the
position in England may be taken as an example.
It has long been the practice of the business
community to specify English law as the choice of
law to govern the contract and English courts as the
courts of jurisdiction over the disputes, especially in
cross-border transactions. This practice is now being
adopted for Islamic financing contracts. While the
suitability of English law and the integrity of English
courts cannot be questioned in these matters, yet for
contracts governed by Islamic law there is a danger.
Now, where the transaction is an Islamic banking
transaction the parties to the contract would
naturally want it to be governed by Islamic law. Even
so, an English court will not apply Islamic law to the
contract. This was the decision in the Shamil Bank
of Bahrain versus Beximco Pharmaceuticals and
others, [2004] All E R 1072 (CA). One of the issues in
that case was the governing law of the contract. The
governing law of the agreements in that case was
stated to be: “Subject to the principles of glorious
Shariah, this agreement shall be governed by and
construed in accordance with the laws of England”.
In the High Court the judge said that the reference to
Shariah was no more than a reference to the fact that
the bank purported to conduct its affairs according
to the principles of Shariah. But that did not mean,
he continued, that Shariah law was applicable to the
contract in an English court.
On appeal the CA said that the statement as to the
governing law was “intended simply to reflect the
Islamic religious principles according to which the
bank holds itself out as doing business rather than a
system of law intended to ‘trump’ the application of
English law as the law to be applied in ascertaining
the liability of the parties under the terms of the
agreement...”.
There was another reason why Shariah law could
not be applied in an English court. The trial judge
in dealing with the question of the applicable
law referred to the Rome Convention on the Law
Applicable to Contractual Obligations 1980 (to which
England was a party). He said it only made provision
for the choice of the law of a country but did not
provide for the choice of law of a non-national
system of law, such as Shariah law.
It has been suggested that one way to overcome
the problem is to set out in extenso the principles
of Shariah that will govern the contract in the
contract itself. If that is done, the courts will apply
those principles as terms of the contract agreed
by the parties. While this may appear to provide
some comfort it cannot be a viable solution to the
problem.
It would simply be not possible to set out all the terms
that will govern a contract within the contract itself
since there is a vast body of statute and common law
and equity that will apply to contracts whether they
are expressed in the contract or not.
The message is clear. Parties that wish to apply
Shariah law to their contracts have to choose a
jurisdiction that will apply such law, otherwise their
intentions will not be carried out. Malaysia is one
such jurisdiction.
Mohamed Ismail Mohamed Shariff is a partner
at Skrine in Kuala Lumpur, Malaysia. Refer to his
profile on page 16.
42