GPSOLO September 2010
Islamic Law in Secular Courts (Again)
By Hdeel Abdelhady
A trio of English court cases illustrates some of the issues that arise when disputes involving Islamic law are tried before secular courts. This article first summarizes the relevant portions of these cases and then discusses their lessons.
Case summaries. At issue in Jivraj v. Hashwani (2009) was whether the enforcement of an arbitration clause requiring that “all arbitrators be respected members of the Ismaili Muslim community” was unlawfully discriminatory. The disputed arbitration clause was contained in a joint venture agreement (JVA) for the development of real estate between Messrs. Jivraj and Hashwani, both members of the Ismaili Muslim community.
The issue came before the court through Hashwani’s application to appoint Anthony Colman (who was not a member of the Ismaili Muslim community) as arbitrator. Hashwani argued that the arbitration clause should not be enforced because it discriminated in violation of the Employment Equality (Religion or Belief) Regulations (EER).
The court rejected Hawshani’s position on two key grounds. First, the EER, which apply to “employment relationships,” did not apply because the arbitrator-litigant relationship did not bear the characteristics of protected employer-employee relationships, such as employment at fixed places and times, significant accountability, remuneration in exchange for services, relative flexibility in termination, and vicarious liability. Accordingly, the arbitrator-litigant relationship was beyond the EER’s proscriptive ambit. Second, even if the EER had applied, the challenged discrimination would have been permitted under the EER’s “genuine occupational requirement” exception, which applies where “being of a particular religion or belief is a genuine and determining occupational requirement.” The court found that the evidence of the religious importance of dispute resolution to Ismaili Muslims would have been sufficient to prove a genuine requirement.
The issue in Musawi v. RE International (UK) Ltd. (2007) was whether Shia Shari’ah (Islamic law) was valid governing law in arbitration under the English Arbitration Act (the “Act”). The court held that it was. The Musawi dispute arose out of an agreement to jointly acquire, develop, and own land. Subsequently, the contract parties disagreed as to their respective rights and entered into an arbitration agreement providing that “Islamic legal standards” governed. They also appointed an ayatollah “as arbitrator and Islamic legal judge.” The arbitrator issued an award, which the defendants challenged.
Under the Act, arbitral tribunals “shall decide the dispute if the parties so agree, in accordance with such other considerations as are agreed by them or determined by the tribunal.” “Other considerations,” the court held, included Shari’ah or other non-national law.
On appeal in Beximco Pharmaceuticals Ltd. v. Shamil Bank of Bahrain E.C. (2004), the court determined whether a governing law clause providing that English law governed, subject to “the principles of the Glorious Sharia’a[h],” rendered Shari’ah governing law or incorporated Shari’ah as a contractual term of reference. The clause had neither effect, the court held.
The Shamil dispute arose out of two financing agreements (styled as Shari’ah-compliant) between Shamil Bank, an Islamic bank, and two of the defendants. The defendants defaulted on their obligations and sought to avoid their enforcement on the ground that the agreements were for interest-bearing loans, and therefore invalid under Shari’ah, which categorically prohibits the payment and collection of interest. This argument might have been successful had Shari’ah applied. As the court itself observed, given the “general consensus upon the proscription of . . . [interest] . . . the defendants would have been likely to succeed” had Shari’ah been applied or incorporated. But this argument was entertained only speculatively.
At English common law and under the Contracts (Applicable Law) Act 1990, the “proper” law of a contract is English law or the law of another country, and not a “non-national system of law, such as . . . lex mercatoria, or ‘general principles of law’, or . . . the law of Sharia’a[h].” And the Shamil governing law clause was insufficiently specific to achieve the incorporation of Shari’ah as a contractual term of reference. “The doctrine of incorporation can only sensibly operate where the parties have by the terms of their contract sufficiently identified specific ‘black letter’ provisions of a foreign law or . . . set of rules to be incorporated as terms of the relevant contract such as a particular article . . . of the French Civil Code.”
Case lessons. Jivraj is clear that, in English arbitration, parties wishing to appoint arbitrators having specific religious beliefs or affiliations must demonstrate a bona fide need for the requirement or avoid English anti-discrimination laws.
Three important lessons on forum selection, governing law, and the doctrine of incorporation emerge from the Shamil and Musawi decisions. First, parties litigating in England and wishing to apply Shari’ah as the substantive law should adopt for arbitration under the Arbitration Act. Second, English courts will apply only English law or other national law as the substantive law of decision, and Shari’ah is excluded from these categories. Third, to achieve incorporation, contracts or arbitration agreements should be clear and specific as to the Shari’ah rules and principles by which the parties wish to be bound. Such specific rules and principles might include Qur’anicchapters (suwar) or verses (ayat), or contemporary interpretations of Islamic banking and finance law, including Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) standards, Islamic legal opinions (fatawa) issued by the Shari’ah boards of Islamic financial institutions, or resolutions of the Islamic Fiqh Academy of the Organisation of the Islamic Conference.
Suggestions. The Shamil case raises important issues that merit discussion, in light of the continuing growth and expansion of Islamic banking and finance. It has been suggested that substantive legal standardization in Islamic banking and finance law would be beneficial. But given the diverse and democratic nature of Islam, it would be neither realistic nor appropriate to expect that Islamic banking and finance law will be completely (and soon) harmonized across the jurisprudential schools (madhahib), sects ( e.g., Sunni and Shia), and geographically and culturally diverse constituencies of the faith. Nevertheless, further clarity and predictability can be facilitated through the adoption of procedural mechanisms and specialized dispute resolution. A few suggestions are offered briefly below.
Cases such as S hamil raise questions about the efficacy of Shari’ah compliance within Islamic institutions. Shari’ah boards, which set and best understand institutional Shari’ah standards, should be better equipped to exercise Shari’ah compliance oversight. One way to empower Shari’ah boards would be to provide them with dedicated legal and compliance personnel and other staff positioned to assist in compliance oversight.
The fatawa or Shari’ah Submissions (explanatory documents for Shari’ah-based conclusions) of Islamic financial institutions and other entities should be published with regularity, on an industry-wide basis. Of course, because fatawa or Shari’ah Submissions often contain proprietary information when issued by or on behalf of an Islamic financial institution, the feasibility and manner of publication would require careful consideration.
English and other secular courts are not equipped to interpret Islamic law; they require the assistance of experts. The Islamic banking and finance industry has a vested interest in ensuring that persons acting as Islamic banking and finance experts before courts and in other forums are sufficiently qualified to do so. Some regulation is warranted by, for example, the establishment of a roll of experts certified by one or more entities.
There is a clear need for specialized forums for the resolution of Islamic banking and finance disputes to accommodate parties and facilitate the further development, documentation, and publication of Islamic banking and finance law, as currently practiced. Such forums must offer the same transparency and predictability provided by English and other frequently used systems, with the much-needed benefit of expertise.