IRP 33 – Enforceability Of Islamic Financial Contracts In Secular Jurisdictions: Malaysian Law As The Law Of Reference And Malaysian Courts As The Forum For Settlement Of Disputes

This research paper examines the enforceability of international Islamic financial contracts in secular jurisdictions with a specific reference to England and Malaysia. English law and court are commonly categorized as the choice of law and choice of court preferred by the contracting parties in cross-border transactions due to their reputation for integrity and the resultant respect they enjoy. However, past experience shows that English courts are reluctant to recognize the underlying Shari’ah nature of Islamic financial contracts. The paper will discuss relevant cases in which these issues have been raised with a view of finding a viable solution. Furthermore, the paper will explore relevant Private International Law principles with a special reference to a “proper law of contract” principle, as well as the Rome Convention and Rome I Regulation. One of the solutions could be found in “doctrine of incorporation” where clearly identified Shari’ah principles of a contract could be enforced as contractual terms. Alternatively, the paper is proposing the Malaysian law and court as the choice of law and the forum for settlement of disputes where effective legislative and judicial mechanisms have been developed for the recognition and enforcement of both conventional and Islamic aspects of the contracts.

Keyword: Islamic finance, cross-border transactions, disputes, law of choice, doctrine of incorporation