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sufficient to incorporate the principles of Sharia law into the parties’ agreements, the
defendants would have been likely to succeed. [Para 55]
In Sayyed Mohammed Musawi v. R. E. International (UK) Ltd. & Ors [2007] EWHC 2981 (Ch),
involving the applicability of the “Shia Sharia law”, similar to the “principles of the Glorious
Sharia’a” mentioned in the above case, the issues of choice of law was brought to the forefront.
Though the parties agreed the Shia Sharia law is applicable to the contract, which was not a
contentious issue in the case, the judge held that “at common law the proper law of a contract
had to be either English law or the law of another country, and the courts would not apply any
other system to a contract.” [Para 19]. Hence, the court concluded that the applicable law in
the case was English law.
The above cases reflect the polemics of the governing law clause in Islamic finance
transactions. Such polemics are also present in sukuk transactions, which require some
immediate solutions. The interaction between Shariah and English law and the seeming
convergence of laws happening in some jurisdictions calls for a way forward.
A.4.4 Provisions for Arbitration in Sukuk Transactions
The paradigm shift to alternative dispute resolution processes in civil and commercial
transactions has largely influenced the dispute resolution agreement in the governing clauses
of Sukuk Prospectuses. The Saad Sukuk Prospectus partly provides for the likelihood of
arbitration in the settlement of disputes between the company and any other party. However,
in more emphatic terms, the DanaGas Sukuk Limited Prospectus provides that “[a]ny disputes
which may arise out of or in connection with the Transaction Documents may be finally settled
under the Rules of the London Court of International Arbitration” (Dana Gas, 2007: 38).
Adopting such rules does not preclude the applicability of Sharī'ah in the arbitration
proceedings. It depends on how the parties expressly provide for the applicable substantive
law for such proceedings. Essentially, arbitration serves as a preventive and remedial measure
for protecting the sukuk holders (Jarrar, 2009). This will be more effective when the
arbitration proceedings are conducted based on the Islamic arbitration principles, which are
not as restrictive as the conventional rules of arbitration.
The use of friendlier and less formal procedures for resolving securities disputes such as
arbitration and conciliation will allow for expert arbitration panels where parties can clearly
stipulate in their dispute resolution agreement that any dispute arising from the sukuk
transaction shall be resolved by an arbitration panel duly constituted by the triad of a lawyer,
Sharī'ah scholar, and finance expert. There is no doubt that this three-man panel will be more
appropriate for disputes involving sukuk transactions, since the arbitrators are experts in all
aspects of the transaction in dispute. Even if the arbitration tribunal is mandatorily required
to use lex arbitri (the law of the seat of arbitration) under the relevant laws, the mere fact that
they are experts in all required aspects is an added value to the proceedings. It goes without
saying that there are now regional and international institutions that have calibrated their
arbitration rules to accommodate Islamic finance disputes, including disputes arising from
sukuk transactions. Examples of such institutions are the Kuala Lumpur Regional Centre for