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for other jurisdictions such as Malaysia and the UAE, who both have similar panels in their
respective ICM.
However, there are cases where the choice of law clause is ambiguously drafted. This was the
case in Beximco Pharmaceuticals Ltd & Ors v. Shamil Bank of Bahrain E.C. [2004] EWCA Civ
19. In this leading case, Shariah has been presented as being in conflict with English law, and
the appellant brought an appeal against the claimant, Shamil Bank of Bahrain, in relation to a
single issue, which is incidentally related to the jursdiction . In this case, the lender, Shamil
Bank of Bahrain, agreed to provide a financing facility to the borrowers, Beximco
Pharmaceutical Ltd and others in 1995. The financing scheme was a murabahah (mark-up sale
contract), which is an interest-free working capital facility. In the event of default, there were a
number of termination events under the murabahah agreements. This triggered formal court
proceedings in the form of an application for summary judgment.
The borrowers agued that, since Shariah prohibits interest on loans, the murabahah
agreements were disguised loans involving interest, and, as such, the agreements were invalid
and unenforceable. The High Court granted summary judgment to Shamil Bank of Bahrain
while concluding that Shariah principles did not apply, as Shariah cannot trump the
application of English law. While the borrowers were initially refused permission to appeal in
the decision of Moris J., they were, however, granted the permission to file an appeal “relating
to the construction and effect of the form of the governing law clause contained in the
financing agreements” by Clarke LJ. The said governing law clause of the murabahah financing
agreements provides:
“Subject to the principles of the Glorious Sharia’a, this Agreement shall be governed by and
construed in accordance with the laws of England.”
This was a litmus test for the English courts to hand down their position on which law applies
– “the Glorious Sharia’a” or the Laws of England? This was fundamental in construing the
applicable law in the financing agreement, which will invariably clear the way for the
determination of the substantive suit. In summary, the appellants raised the usual Shariah
defence, which is now generally being considered as “a lawyer’s construct” in Islamic finance
litigation. The main issue before the Court of Appeal was whether the murabahah
arrangement fell foul of relevant principles of Shariah regulating such a transaction, which
would lead to freedom from liability on the part of the borrowers under the financing facility.
After considering the diverse positions of expert witnesses and applying relevant English
principles, the court came to the conclusion that Shariah principles do not apply, which makes
the financing scheme enforceable.
Since two systems of law cannot be applicable to a particular contract, the issue boils down to
the construction of the governing law clause. As indicated by the court, the borrowers would
have been successful if they had validly incorporated the relevant Shariah principles applicable
to the contract:
The fact that there may be general consensus upon the proscription of Riba and the essentials
of a valid Morabaha agreement does no more than indicate that, if the Sharia law proviso were