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Cases Litigated in the U.K. Courts

In Shamil (Islamic) Bank of Bahrain v. Beximco Pharmaceuticals,[1] the defendant (Beximco) argued that obligations on them are enforceable only if valid under both Shari'aa and English law. They argued further that the cost- plus (murabaha) arrangements were merely a disguise for interest-bearing loans, which are unenforceable under Shari'aa.

The court held that reference to the law (Shari'aa) was intended to mean that the bank held itself out as doing business in accordance with Islamic principles and was not intended to trump the application of English law.

There have been many other litigations and court cases in Malaysia regarding the same subject.[2] In a case that involved the application of the different schools of thoughts — Sunni and Shi'aa — the judge,[3] after conducting a survey of differing sects of branches of Sunni and Shi'i, described the issue as “a mind-boggling minefield awaiting lawyers and judges alike.”

Resolutions Taken by "Islamic" Banks to Avoid Lengthy Trials

In response to these cases, and to reduce the confusion of the judges in different courts and in different countries (especially non-Muslim countries), many Islamic banks and finance companies have resorted to modifying their “Islamic” contract to include some of the following sample articles[4]:

■ “This Agreement shall be governed by and be construed in all respects in accordance with the laws of the State of Malaysia not being Islamic Law (Shari'aa) and the parties submit to the jurisdiction of the Courts ... (not being the Shari'aa Courts or any Courts implementing Islamic law or Shari'aa) in all matters connected with the obligations and liabilities of the parties under the security document.”

■ “Nothing in this Agreement shall be invalidated and no rights, powers, remedies and security of the financier created under the Security Documents shall be affected in any way if any of the provisions herein ... or the enforcement thereof contravenes or is prohibited by Islamic Law, Islamic tenets and/or 'Shari'aa.'”

It is also interesting to note that in many of the “Shari'aa-compliant” contracts that are supposed to be “Islamic,” we find similar statements, most famous of which is: …. this is a finance contract and in case it is brought to court it will be handled as a regular interest-bearing financial transaction!”

  • [1] Ibid. Shamil Bank of Bahrain v. Beximco Pharmaceuticals [2003] 2A11E R (Comm) 849 (Ch); [2004] 2 Lloyd's Rep 1 (CA).
  • [2] Bank Kerjasama Rakyat Malaysia Berhad v. EMCEE Corporation Sdn Bhd [2003] 2MLJ 408; Affin Bank Bhd v. Zulkifli b Abdullah [2006] 3MLJ 67; Bank Islam Malaysia Bhd v. Adnan В Omar (1994) 3CLJ 735; Bank Islam Malaysia Bhd v. Shamsudin bin Hail Ahmad [1991] 1 LNS 275; Arab-Malaysian Merchant Bank Bhd v. Silver Concept Sdn Bhd [2005] 5 MLJ 210; Tahan Steel Corp Sdn Bhd v. Bank Islam Malaysia [2004] 6MLJ 1, 33, 34.
  • [3] J. Suriyadi, in AMMB v. Silver Concept.
  • [4] See note 21.
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