ReSolution Issue 11, Nov 2016 | Page 30

being the same for other common law jurisdictions is very likely in addition. When the topic regarding governing the law of the Agreement arises the court held that the provisions of a contract could only be governed by a single law. Therefore, in the present case, the Agreement could not be subject to both, the English law and the Sharia law. Further, the court held that the parties were permitted to choose the governing law of a contract in accordance with the Rome Convention[3]. However, the latter convention has provided that the parties were only entitled to choose the law of a country. Further, the judge held that the general reference to the Sharia law in the Agreement did not explicitly relate to the intention of the parties to incorporate the same as the exclusive governing law. In the light of this judgment, it is implied the moral burden of structuring Sharia compliant contracts has been placed on the contracting parties due to the reluctance of English courts to permit Sharia law to be chosen as the governing law of contracts.

Structuring an Instrument in Compliance with Sharia

Apparent from the Islamic economics literature, is that interest-free instruments must guide the raising and mobilization of financial resources in an Islamic economy. This is a requirement that stems from the moral injunctions well rooted in the Qur’an and the Sunna, which form the epistemological sources of the Sharia. The Sharia invokes an extensively participatory form of profit-sharing system that can replace interest-based financial instruments. Such instruments are traditionally termed profit sharing, or mudāraba, and an Islamic term for a sale where the buyer and seller agree on the mark-up for the item(s) being sold better known as murabaha. The modern murabaḥa is considered as a crucial instrument for facilitating short-term finance for consumer and business requirements. It is used to finance household items, cars or business equipment and/or supplies. It is often used to replicate a conventional trade financing agreement. With the rise of Islamic banking since 1975, murabahah has become "the most prevalent" Islamic financing mechanism. This contract illustrates several methods that are used widely in the formulation of Islamic financial transactions. This includes the conglomeration of nominate contracts, the binding promise and the application of takhayyur which initially was put to systematic use in the compilation of the Majalla, completed in 1876. The principle of takhayyur has expanded extensively in its scope, and has proven to be the major expedient in the modernising legislative reforms throughout the Muslim world. These tools and legal stratagems are pivotal to the industry’s gamut of financial structures. However, some of the indemnities comprised in murabaḥa transactions may fall foul under the English statutory law, in particular the Sale of Goods Act, 1979 and the Unfair Contract Terms Act, 1977.














These laws prevent the contracting parties from incorporating such indemnities into their contracts depending on the circumstances of the particular transaction. Further, the English domestic industry has faced several regulatory difficulties due to the hybrid legal structure of the Islamic financial contracts. However, the Shamil Bank Case infers that the choice of governing law which would apply to financial documents and the extent of the applicability of Sharia law principles are bound to arise in cases where an Islamic finance transaction is concluded between parties from multiple jurisdictions (both secular and Sharia jurisdictions).