Series:

Adnan Trakic

Abstract

There is an increasing need for Shariʾah compliant dispute resolution in Islamic finance. Currently, the Islamic finance industry seems to prefer litigation over alternative dispute resolution mechanisms, such as arbitration. Consequently, when disputes occur and parties choose litigation, the courts are more likely to treat an Islamic finance transaction as a conventional contract and apply domestic conventional law; thereby neglecting Shariʾah underlying nature of such transaction. The English law and court clause tend to be the preferred choice in cross-border Islamic finance contracts. A careful examination of cases decided by the English courts, involving Islamic finance issues, shows that the courts are inadequate to adjudicate Shariʾah aspects of Islamic finance contracts. That is why a new, alternative, Shariʾah compliant dispute resolution mechanism is required. The Malaysian court litigation or an arbitration in Asian International Arbitration Centre (AIAC), formally known as Kuala Lumpur Regional Centre for Ar­­bi­tration (KLRCA), could be the alternative sought. Unlike any other common law ­jurisdiction, sections 56 and 57 of the Central Bank of Malaysia Act 2009 and AIAC i-Arbitration Rules 2018 guarantee the recognition and enforcement of Shariʾah aspects of Islamic finance contract both in litigation and arbitration. The article examines the proposed alternative and suggests feasible solutions.