ReSolution Issue 11, Nov 2016 | Page 29

concisely why English law is the commonly preferred law for cross border financial Islamic transactions.

Enforcement

The Medjella is considered the first attempt to codify Islamic law and represents the endeavour of the Ottoman Empire. The Medjella dedicated an entire chapter to arbitration, stating within it that ‘a decision validly given by the arbitrators in accordance with the rules of law is binding on all parties’. Decisions by arbitrators were not enforceable except upon confirmation by the judge, and then only if made in accordance with law. In the world of Sharia compliant finance, there has never been more of an openness to settle disputes through arbitration. In previous times, and to some extent today, scholars of Islamic law considered the enforcement of the award of an arbitrator to be purely discretionary by the judge.

At the outset, however, it is paramount to understand why excessive focus has been put on examining enforceability issues. Generally, parties to a transaction scrutinize the law governing the same in order to determine whether their rights and obligations would be enforced in a consistent and transparent manner. A primary function of law in any commercial and financial transaction is to provide a considerable degree of certainty and to enforce the determinations of the parties in respect to their obligations. The choice of law in regard to Islamic finance transactions is more delicate as the parties would naturally want to opt for Islamic law as the governing law of the finance documents. However, parties cannot merely adopt Islamic law as the governing law without reference to the law of a particular jurisdiction since Sharia law is not a standard codified law. Therefore, a codified legal system which exercises the principles of Sharia law is often used as the governing law in an instrument in order to provide more certainty on the rights and obligations of the transacting parties.

This embedded in the landmark case of Shamil Bank of Bahrain EC v. Beximco Pharmaceuticals Ltd (theShamil Bank Case)[2], which discussed the scope and interpretation of Sharia law in relation to the English law. In this case, defendants failed to make payments under the murabaha agreement (the Agreement) entered into with plaintiff and consecutively, the latter claimed the amount outstanding under the provisions of the Agreement. The governing clause in the Agreement stated that “subject to the principles of the glorious Sharia, the agreement would be governed by and construed in accordance with the laws of England”. The defendants argued that the Agreement contained a hidden form of riba which was contrary to the principles of Sharia and was hence, unenforceable. Therefore, the foremost issue of debate at the appellate court was whether the governing law clause in the Agreement required the consideration of the Sharia law.

The Shamil Bank has been positively accepted by commentators in its two main propositions concerning Shariah as a choice of law, namely: i) the Rome Convention which requires that the law of a contract be that of a country; and ii) there can be only one law which governs a contract. The probability of this conclusion