Shari’ah Has ‘priority’ in Islamic Finance Cases

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Shari’ah Has ‘priority’ in Islamic Finance Cases

Reuters Available at

KUALA LUMPUR: Islamic law should prevail over secular law when a Malaysian court hears Shariah finance matters, a religious scholar said, responding to uncertainty in the industry about how to deal with legal disputes. Dispute resolution is expected to be a key area for the $1 trillion Islamic finance sector as a fragmented regulatory framework and untested court systems push legal wranglings into unchartered territory.

The ability of civil court judges to adjudicate on Shariah matters and possible contradictions between secular and Islamic law are some issues that the industry is grappling with. Shariah adviser Engku Rabiah Adawiah Engku Ali said a Malaysian law requiring judges to refer Islamic law issues to national level Shariah advisers “should be indicative that the Shariah principle should prevail.” But Malaysian law does not make it clear that the Shariah should prevail in the event of a conflict with secular law, resulting in some uncertainty, she said. “That should be clarified by the legislative,” she said on the sidelines of a Shariah scholars conference recently.

Malaysia has the world’s largest Islamic bond market and is seen as a leading center for Shariah banking, alongside the Middle East. The relationship between Islamic and secular law is unclear. This is reflected in a 2004 case involving Shamil Bank of Bahrain where an English court refused to apply Islamic law to a murabaha contract, reasoning that two systems of law cannot govern one contract. Kuwait’s Investment Dar said in May it had defaulted on a $100 million sukuk registered in Bahrain and in the United States a court case is ongoing involving the sukuk issued by oil firm East Cameron.

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