An Analysis of the Courts’ Decisions on Islamic Finance Disputes

Abstract

Most Islamic financial institutions operate in an environment where the legislative framework consists of mixed legal systems where the Shari'ah (Islamic law) co-exists with common law and civil law legal systems. As such, every transaction, product, document and operation must comply with the Shari'ah principles as well as relevant laws, rules and regulations. In the case where Islamic law is the ultimate legal authority, such as in Iran and Saudi Arabia, any issue in Islamic banking cases may not pose a big problem; whilst in the countries of mixed legal systems as in the case of Malaysia or in a non-Islamic legal environment such as in the UK, the issue is very significant. This inherent issue will be more complicated if Islamic finance disputes involve parties from different jurisdictions in cross-border transactions. This leads to the question of how Shari'ah principles apply together with the laws of the jurisdiction and how a case will be adjudicated in a court. In view of this unresolved issue, this paper attempts to critically review and analyse the courts’ decisions on Islamic finance disputes in four different jurisdictions, namely Malaysia, the United Kingdom, India and the United States. With the emergence of Islamic finance litigation, this paper strongly advocates that a proper legal framework and infrastructure as well as the substantial support of the legal fraternity are the prerequisites for the advancement and significant growth of the Islamic finance industry.

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