Islamic Principles Governing International Trade Financing Instruments: A Study of the Morabaha in English Law

Chuah, Jason C. T. | January 1, 2006

The past years have seen a clear and incontrovertible rise in the use of international financial and commercial instruments expressed to be governed by Islamic principles. Banks and other commercial entities in Islamic and non-Islamic countries are increasingly aware of the commercial need to offer services which are specifically tailored to meet this sector of the international market. Disputes over the interpretation and application of such instruments invariably arise. English courts are not insulated from such disputes, given that the City of London is at the forefront of many international commercial and financial dealings. As a matter of law, the question of what law or legal principles should govern the instrument or contract must necessarily be determined. That was indeed the case in Shamil Bank of Bahrain EC v. Beximco Pharmaceuticals Limited. This article uses the Shamil Bank case to explore the issue of how compliance with Islamic principles might best be achieved in a financing agreement governed by English law. In particular, it discusses at some length how the author views that the incorporation of Islamic principles might be best achieved, in English law, by means of the proper construction of the contract. Closely allied to that issue is an examination of the English Court of Appeal’s approach to the issue of incorporation of Islamic principles into the financing agreement.