by Abdullah Abdul Rahman (Partner (Dispute Resolution and Islamic Finance) of Cheang & Ariff in Kuala Lumpur)
In Shamil Bank of Bahrain EC v Beximco Pharmaceuticals Ltd and others  4 All ER 1072, the English Court of Appeal did not accept Shariah as the governing law of a contract. This was notwithstanding that the contracts in question were Islamic banking contracts based on the Murabahah and Ijarah principles. The Court of Appeal made that decision on the basis of the Rome Convention on the Law Applicable to Contractual Obligations 1980 (‘Rome Convention’) which had the force of law in the United Kingdom.
However, the position in Beximco is no longer applicable after the Rome Convention was replaced by the Regulation (EC) No. 593/2008 of the European Parliament and of the Council on the Law Applicable to Contractual Obligations, known as the Rome I Regulation (‘Rome I Regulation’) and the coming into force of that regulation in the UK on 17 December 2009. The Rome I Regulation permits the Shariah as the governing law of a contract.
In any event, the position in Beximco had been confined to litigation. It has never been applicable to arbitration. This is due to s. 46(1)(b) of the English Arbitration Act 1996 which permits the application of the Shariah as the governing law of a dispute in an arbitration. This position on arbitration has been confirmed by the decision in Musawi v R.E. International  1 All ER (Comm) 607.
Continue reading Shariah as the governing law of Islamic finance contracts in the UK: The impact of Rome I Regulation and the position in arbitration