Islamic Economics Institute

WHAT LAW WILL GOVERN MY CONTRACT?

Abstract
14 December 2016

WHAT LAW WILL GOVERN MY CONTRACT?
ISLAMIC LAW AND THE PROBLEM OF CERTAINTY AND
ENFORCEABILITY OF CONTRACT


Prof. GERMAN RODRIGUEZ MORENO

The central question before the English Court of Appeal in the case of Shamil Bank of Bahrain v Beximco Pharmaceutical Ltd and others (2004) was the construction in respect of the relevant ‘Governing Law’ clause. That clause read as follows: “Subject to the principles of the Glorious Sharia’a, this Agreement shall be governed by and construed in accordance with the laws of England.” The task of construction in a commercial agreement, the Court of Appeal added, was to ascertain the presumed intention of the parties. The conclusion reached by the Court was that the sole interest of the Borrowers was to obtain advances of funds to be used as working capital and that they were indifferent to the form of agreements required by the Bank or the impact of Sharia law upon the validity of the agreements. In the subsequent, and lesser known, case of Musavi v R.E. International (UK) Ltd and others (2007), all relevant agreements were governed by Sharia law. The issue before the English High Court of Justice was not the intention of the parties but the enforceability of the arbitration proceedings contemplated in said agreements, stated as follows: “The parties to the dispute……have agreed to accept whatever judgement is issued by Sheik Mohsen Araki as arbitrator and Islamic legal judge in settlement of the dispute according to Islamic legal standards and to accept it as a final judgement and submit to its findings.” A third and final element to be thrown in to the equation is the Convention on the law applicable to contractual obligations, better known as the Rome Convention (1980) which in its Article 1 states that “the rules of this Convention shall apply to contractual obligations in any situation involving a choice between the laws of different countries.” This paper analyses the decisions in Shamil and Musavi, their impact upon and implications for any commercial agreement stated to be governed by Sharia law primarily but not solely in a European context.

 

 


 

 

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