Governing law under murabaha contracts
Produced in partnership with King & Spalding
Governing law under murabaha contracts

The following Banking & Finance guidance note Produced in partnership with King & Spalding provides comprehensive and up to date legal information covering:

  • Governing law under murabaha contracts
  • Murabaha cases

Murabaha contracts typically provide that the laws of England and Wales will govern agreements performed in the UK. A number of factors favour this practice:

  1. most of the parties to such contracts reside in the UK, and understand the legal regimes of such jurisdictions

  2. islamic financial institutions (IFIs), which are often banks or other financial institutions, insist on this choice of law

  3. disputes regarding these agreements will likely, as a matter of convenience, be heard by an English court, and these courts function best when interpreting their own law

  4. no superior alternative to such bodies of law currently seems available

Some Islamic finance commentators have criticised the use of English law and courts on the grounds that they lack the capacity to correctly interpret Islamic finance agreements. While this may be the case, no other body of law or forum seems sufficiently compelling for UK-based murabaha agreements.

Parties to a murabaha agreement could address the governing law issue by adopting Shari’ah as the governing law of their agreement, and selecting an arbitration procedure to hear disputes. Arbitration provisions may be drafted to specify an arbitrator (who would presumably be trained in Shari’ah), an approved list of arbitrators, or a specific method for selecting an arbitrator or arbitrators. In the Shari’ah context, the choice of the arbitrator would do much to determine the