Legal Certainty and Islamic Commercial Law

The absence of binding precedent and the reduction of prior judgments to the leval of persuasive authorities produces legal uncertainty, rendering the outcomes at court less predictable for the parties, therefore weakening contractual certainty and commercial calculability. At the same time and especially with regard to a legal system that is (since its origins) over 1200 years old, the absence of binding precedent creates the possibility for change over time, just as the legal schools create the possibility of variation across territories of the earth.

Legal pluralism appears to invite a litigant to select from one or more schools of law which suit him or her in making submissions to the court. This of course is the opposite of a principle driven legal system and is one driven by opportunity and self-interest, and one in which the rule of law can never be fully realized as the laws applied will be dependent upon the time, place, and persons involved.

Even supposing that such flexibility may be practical regarding personal matters, the magnitude of choices or options that a legal tradition as diverse and as pluralistic as that of Islam becomes impractical when a global industry such as Islamic banking or investment comes into being. The need for contractual and regulatory certainty is much greater when the issues at stake are not personal choices but rather business dealings in which large quantities of assets or money may be at stake.

Although far from complete, efforts to codify and harmonise Islamic financial and commercial law as a means of facilitating the growth and consistency of a modern industry has led to the creation of shari’a standards and standards setting organisations.

A further response to the same pluralism and the absence of uniform and complete standards in this nascent industry is the choice of English law; English law is more commonly chosen as are the English courts than any other law or court for international Islamic financial and banking contracts. And the principles of English contract law permits the parties to incorporate substantive provisions of Islamic law provided that they do so with sufficient clarity and consistency.

At risk of stating the obvious a further reason for the reliance on English law and courts is the fact that Islam unlike England does not comprise a jurisdiction. Islam is not a country. Setting aside debates about whether or not or when and where Islamic law functioned in the pre-modern era as a national legal system (and whether or not it might be said to do so today), the Muslim world does not comprise a jurisdiction and Islamic law is not national law. Therefore in the modern world of nation states in order to secure the benefit of consistent enforcement (with all of the commercial benefits flowing therefrom), Islamic financial contracts must chose adjudication in a nation by the law of that nation. Arbitral codes and jurisdictions are a further option but one that has appeared infrequently in practise.

Notwithstanding the transnational and pluralistic character of Islamic law it is important to recognise the degree to which opinions and the legal schools have converged regarding large areas of commercial and financial law in particular. The existence of disagreement around the margins or with respect to the hard or the borderline cases does not negate the coherence of a legal system, whether English or Islamic.

The treatment of areas of law by UK Islamic Finance Law is intended to re-state trite law, or where not trite, the majority view, and where the four legal schools are split or where a minority view is preferred, the state of contemporary opinion on the matter will be noted.