Transnational Islamic Finance Disputes: Towards a Convergence with English Contract Law and International Arbitration

Abstract

ABSTRACT While Islamic finance is premised on wholly antithetical rules and notions as opposed to traditional Western finance, the resolution of pertinent disputes has been structured along the lines of standard commercial arbitration. Islam has always favoured arbitration and mediation and in fact promoted these in very much liberal terms. As a result, there has never been a need to adapt a sui generis Islamic dimension to Islamic finance, because clearly Western and Islamic notions of arbitration largely coincide. In recent years there have been some attempts to limit Islamic finance arbitration within a narrow understanding of Islamic ethics, despite the fact that it has become transnational in character and Islamic ethics are in any event inbuilt in the architecture of Islamic finance instruments, which arbitrators can only avoid at their peril. It is no wonder that Muslim end users generally prefer to resolve disputes arising from Islamic finance transactions in conventional arbitral institutions, while at the same time choosing English law to govern their agreement, typically concurrently with Islamic law or other laws. As a result, Islamic finance has equally attracted non-Muslim end users. The English High Court has not only developed a particular expertise in Islamic finance law but has, in addition, demonstrated how Islamic and secular law are generally compatible and complementary (with some notable exceptions) in construing transnational Islamic finance. At the same time, institutions and rules in the Muslim world that depart from the global arbitration paradigm are fast falling into desuetude. In light of these findings, it is argued that a sui generis Islamic finance arbitration model is not only disfavoured by end users as being out of touch with business reality but is inconsistent with the fundamental tenets of the Islamic law of arbitration.