A Study on the combined-law clause in Islamic financial contract

The rapid growth of Islamic finance lead to a rise in the number of disputes that implicate Islamic law(Shaira). Even though the primary law of Islamic finance contract can be that of a common law or civil law country, the implication of Sharia still remains. There is a resistance by some courts to apply Sharia to contracts which invoke another national law. This judgment is based on the principle that only one law can govern a contract and the Rome Convention’s requirement that the law of a contract be that of a national system. Scholars also support these conclusions by general precepts of common law and legal reasoning. In spite of these firm statements from courts and scholars, the practice of arbitral tribunal judging matters of Islamic finance has been to apply the principles of Sharia to fulfill the intent of the parties, who used Islamic financial instruments instead of conventional bank products. There are also cases showing that U.S. courts and European arbitrators are willing to use Sharia. If judges do not understand the reasoning of Islamic finance practice in incorporating Sharia, just like Shamil Bank v. Beximco Pharmaceuticals case, the result greatly hampers the growth of Islamic finance industry as well as the bad prejudice of Islamic law. As Islamic finance arbitrations consistently show a reliance on the use of national law with Sharia, western courts should judge the dispute to the greatest extent possible in accordance with the chosen national law, and only resort to applying Shariah principles as a gap-filler or when Islamic law sources are the basis of the specific issue being raised.