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A.4 OVERNING LAW CLAUSES OF SELECTED SUKUK TRANSACTIONS
This section draws heavily from Oseni and Hassan (2014). This section presents and analyses
the governing law clauses of a selection of 10 sukuk transactions as contained in their
prospectuses. While it may not possible to review each sukuk transaction, for research
convenience, they have been classified into four main categories, based on the manner they
were drafted. First, the sukuk transactions that choose English law and the exclusive
jurisdiction of the English courts. Second, sukuk transactions that partly provide for the
English law and jurisdiction. Third, sukuk transactions that provide for Sharī'ah as the
exclusive law for the interpretation of the underlying agreements. And fourth, sukuk
transactions that provide for arbitration as an alternative form of dispute resolution.
A.4.1 English Law and Exclusive Jurisdiction of the English Courts
When sukuk financing first made its initial debut in the global scene, there was a general trend
of choosing English law as the governing law in Sukuk Prospectuses, and the English courts
had exclusive jurisdiction to hear and determine any dispute, claim or action arising from such
transactions. Even though this general trend still subsists, there are now new approaches to
the drafting of the governing law clauses of sukuk transactions. The reason for the preference
of English jurisdiction and the English law is not farfetched.
Most of the leading law firms drafting Sukuk Prospectuses are English or western firms with
offices across the Southeast Asian and GCC countries. As some of the Sharī'ah scholars
interviewed argued, this is what the stakeholders want, and it does not necessarily violate the
fundamentals of Islamic commercial law. Some practitioners have also argued that for the
sake of certainty in huge investments such as sukuk, there is a need for a more formal forum
for dispute resolution. Or else, the investors will not want their huge investments to go down
the drain, because of weak regulatory and legal infrastructure.
A consideration of a leading English case would provide a more practical angle and help to
support the case that choice of law clauses are of great significance in the drafting of sukuk
contracts. A number of English court decisions have explored the extent of application of
Shariah in transactions involving Islamic finance products. One common denominator of most
of the cases is the Shariah defence, often pleaded by the defaulting party or the defendant in
order to persuade the court about the inapplicability of Shariah rules, since the contract in
question is void ab initio in the eyes of Shariah. The first instance where the English court
ruled on an Islamic financial transaction is in the case of Islamic Investment Company of the
Gulf (Bahamas) Ltd v Symphony Gems NV & Ors [2002] WL 346969 (QB Comm. Ct 13 February
2002). In this case, involving a murabahah facility, the parties had agreed on the choice of law
and jurisdiction as being English law. After examining the nature and terms of the contract
and listening to expert opinion, the court held that the English law principles of contract must
apply to the purported murabahah contract, despite the fact that the expert opinion revealed
that the agreement in issue did not have the essential characteristics of a murabahah contract.
This is premised on clause 25 of the agreement which provides that “[t]his Agreement and
each Purchase Agreement shall be governed by, and shall be construed in accordance with,