Sharia Goes Wall Street

January 22, 2016

What happens when your business partner wants to resolve a conflict by recourse to Sharia?

When the English Lord Asquith was appointed as sole arbitrator in the 1952 legal conflict between Petroleum Development Ltd and the Sheikh of Abu Dhabi, he found that the references to the Islamic Sharia in the contract between the parties could not be accepted, as …it would be fanciful to suggest that in this very primitive region there is any settled body of legal principles suitable to resolve the conflict in question. 

Having dismissed the legal system of Abu Dhabi in this fashion, the venerable lord moved on to base his judgement on principles derived from what he considered to be the good sense and common practice of civilized nations. It is hardly coincidental that the English Lord deemed English law the most suitably civilized source of law.  Following this and similar judgements by Western arbitrators dismissing the applicability of Sharia to resolve international legal disputes, the long-lasting tradition of arbitration in Islamic legal practice was largely abandoned by Middle Eastern states in their early post-war commercial transactions with Western states.

The Freedom of Contracts

The view that the Sharia may not be applied in arbitration may seem reasonable enough: after all, there is no consensus among Islamic legal schools on the scope of the Sharia, nor do Western companies tend to rely on religious legal principles derived from the Christian or any other legal tradition in their commercial transactions. Constitutional provisions on the role of the Sharia in Muslim-majority states are notoriously vague, couched in general, opaque language on the basis or spirit of Sharia as the guiding principle of all legislation. 

But dismissing the applicability of the Sharia in arbitration on these grounds would be to misconstrue the issue entirely, as one of the foundational principles of contract law is the unbridled freedom of parties to choose principles for conflict resolution (lex voluntatis). There is a broad and established tradition of inserting both legal and non-legal principles, such as good faith, ethics, reason – and religious principles – in contracts. Parties entering into contracts do so with the knowledge of what provisions have been chosen if arbitration should become necessary. 

Following the oil boom in the region in the postwar decades, the problems generated by the idea that Sharia constitutes a ‘special case’ of law inapplicable to arbitration has gradually dawned on the international community. As the number of Middle Eastern states finding themselves in contractual relations with Western companies engaged in the large-scale construction of vital infrastructure increased, so did the number of contracts and the need for arbitration in cases of conflict. Over the course of the last decades, numerous legal instruments have been drafted and implemented to create a consensus on the arbitration procedure, at a pace and with a level of efficiency that actors working on other vital international processes, like the implementation and monitoring of human rights, can only dream of.

The Way Out

Among the legal instruments created to deal with the thorny issue of international arbitration, the model law on the issue adopted by the United Nations Commission on International Trade Law (UNCITRAL) in 1985 (revised in 2006) has had the greatest impact. The model law assists states to ‘reform and modernize’ their laws on arbitration, and has inspired the adoption of numerous laws among the countries in the Middle East. The UNCITRAL model law is cleansed of the derogatory remarks of Lord Asquith and his fellow Western arbitrators in the early post-war decades regarding the applicability of non-Western legal codes in international arbitration, and has inspired the creation of several centers for arbitration in the Middle East, not least in the Gulf States. Unlike earlier processes of arbitration between Western and Middle Eastern states, these centers provide the services of arbitrators with specialized competence in Sharia law to lead the negotiations. 

The creation of a practically oriented and broadly implemented international legal code on the management of legal pluralism in one specific legal domain represents a rather unusual exception in a larger field of discourse sometimes marked by vitriol and hostility: The European Court of Human Rights (ECtHR), as recently as 2003 found Sharia to be incompatible with the fundamental principles of democracy, as set forth in the European Convention on Human Rights; in the United Kingdom, the English Defence League in 2012 coined a campaign to fight the imposition of Sharia Law with examples of stealthily imposed adaptations to Islamic Law to be gathered under the Twitter handle #CreepingSharia (although with some unintended consequences), while in the United States, a broad ‘anti-Sharia’ movement has evolved over the last years, resulting in legislation banning any recognition of principles derived from the Islamic Sharia (and, frequently, from International Law) being fielded in half the states of the Union by 2013. 

The Way Ahead

The success of the UNCITRAL model law in the field of international commercial arbitration serves as an important reminder that religious and other non-state forms of law can, and sometimes should, be accommodated within modern legal systems. There are legitimate concerns to be voiced concerning the consequences of incorporating religious legal mechanisms in state law, particularly in the area of family law, which has so far dominated the discourse on this topic. Hence, far from a blanket denial or acceptance of the principles of non-state legal systems, legislators should approach the interface of modern law with other forms of law with an open mind, in order to find agreeable solutions within the boundaries set by international human rights law.