The adjudication of Shari'ah issues in Islamic financial contracts

Abstract

Purpose – This research aims to explore the possibility of raising and adjudicating Shari'ah issues in Islamic financial contracts before the secular courts with specific reference to the UK and Malaysia. Design/methodology/approach – This is a legal research, and therefore, the paper uses the qualitative research methodology whereby a content analysis, in-depth case study, and library-based research were mainly used. Findings – Shari'ah issues raised before the UK courts, and arguably, before the secular courts in other Western jurisdictions, would not be adjudicated and enforced. English courts, in particular, would decide Islamic financial contracts according to the English law, disregarding Shari'ah issues. Conversely, Shari'ah issues raised before Malaysian civil courts would be duly adjudicated and enforced. The civil court is bound, by the new Central Bank of Malaysia Act 2009, to refer those issues to the Shari'ah Advisory Council of the Central Bank of Malaysia for them to be ascertained. The subsequent ruling of the SAC is binding on the courts. Originality/value – The Malaysian model for the adjudication of Shari'ah issues in Islamic financial contracts is very effective. Therefore, the research proposes to the parties in international Islamic financial contracts to choose Malaysian law as the law of reference and Malaysian courts as the forum for settlement of disputes. The Malaysian model, being already tested, can also be successfully exported to other countries wishing to introduce or develop Islamic finance.