Reuters reports on a conference of Islamic scholars held yesterday in Bahrain to discuss legal issues raised by Sharia-compliant financing arrangements. Western business partners generally want contractual provisions that stipulate British law will govern commercial contracts-- and any arbitration proceedings to settle contractual disputes. However strict interpretations of Islamic law preclude this because Sharia does not accept human-made law that is not derived from Islam. Scholars urged parties to contracts to build in arbitration provisions that refer disputes to Sharia-based arbitration centers, like Dubai's International Islamic Centre for Reconciliation and Commercial Arbitration. However Westerners are reluctant, and Dubai's center, created in 2005, has yet to hear a case.
As international economic problems increase, courts are beginning to see disputes involving Sharia-compliant real estate financing. One of the issues being raised is whether, in loans structured as purchases by the bank on behalf of the borrower to comply with Islamic law, courts should look to the form of the transaction and apply laws applicable to real estate sales, or should instead look through form to substance and apply rules applicable to loans.
