Hakimah Yaacob is an Associate Researcher at the Islamic Banking Unit,
International Shari'ah Research Academy (ISRA) for Islamic Finance.She holds a
Bachelor of Laws (Hons), Bachelor of Syariah (Hons), a Master in Comparative
Laws, from International Islamic University Malaysia and a diploma from Tokiwa
International Institute, Japan. Previous positions held include Head of Law
Reform & International Treaties, SUHAKAM, legal practitioner, as well as being
the Drafter of International Standard Organisation 26000 on social
responsibility. She has published many articles on alternative dispute
resolution (ADR) in Islamic finance including arbitration, mediation and hybrid
Many speak about harmonisation and standardisation in Islamic finance at the
international level. There are currently thirty nine (39) Conventions for the
harmonisation of rules of private international law and for the promotion of
international law and for the promotion of international judicial and
administrative cooperation in civil and commercial matters. The greatest
challenge in examining the Convention from Shariah perspectives lies in the
difficulty in figuring out exactly what it means and what reforms would be
required to give full effect to the object of the Convention. The current Hague
Convention available discusses the application of civil and commercial matters,
whereas a Shariah transaction does not fall within the ambit of civil or
commercial matters. Where matters cannot be harmonised then the author propose
that Islamic transactions should be recognised. Should they want to proceed with
a treaty, a separate international treaty mainly for Islamic finance should be
established. Alternatively, should we want to ratify the existing Hague
Convention on Private International Law, then Optional Protocol should be
established in order to show the recognition of a unique set of principles in
An effective legal framework at the international level is needed to ensure a
resilient development of Islamic finance. This relies on creating a framework
that is accommodating and facilitates the development of the industry. This is
also to ensure the enforceability of Islamic financial contracts and be given a
credit on its own merit. Due to this, a credible and reliable forum for
settlement of legal disputes arising from Islamic finance transactions is
pivotal. The industry and supervisory authorities should not hesitate to take
the lead in spearheading the development of Islamic finance through the issuance
of clear policy decisions and directions from which market players could be
certain in their involvement. This is to avoid any legal and Shari’ah
risks in the future. On the other hand, it could help in avoiding stigma at
international level. Indeed the Convention needs to be carefully pronounced
without causing any confusion to the industry. The law is to support the market,
smooth out lingering legal anomalies with the conventional system and induce
greater legal standardisation and convergence.
International conventions or treaties guarantee that the litigants will be
judged according to the law of their choice. However, scrutinising the case of
Mount Albert Borough Council v. Australasian Temperance & General Mutual Life
Assurance Society Ltd, the proper law of contract was defined as the law
which the English or other Court is to apply in determining the obligation under
the contract. In the absence of comprehensive legislation in governing Islamic
finance across the globe, the parties should be given a freedom to enter into a
contract with their own choice of law. It means they may opt for the best for
the contract or the best for their interest and position. Thus, where the
parties have an agreement extracting out the manner in which they have chosen to
resolve their disputes, it should be respected in every way possible. It is
common to see in an agreement the governing law clause written as "The Contract
shall be governed by the law of England and any dispute, question or remedy
however-so arising determined exclusively by the Courts of England." This
happens when the parties have not been given many choices in settling disputes
involving their interests. Hence, they finally opted for an English court to
decide on the validity of the contract.
Referring to Re Herbert Wagg & Co. Ltd.' it was held that "This Court will not
necessarily regard the parties' choice of law as being the governing
consideration where a system of law is chosen which has no real or substantial
connection with the contract looked as a whole". The views concluded that the
courts should have residual power to struck off, for good reason, choice of law
clauses totally unconnected with the contract. However, in this case also, Re
Helbert Wagg it was held that 'the parties may well contemplate that different
parts of their contract shall be governed by different law. Is there any
justification to exclude the intended terms of the agreeing parties in the
contract and merely apply English law for the execution of the contract and to
be considered as valid and name it as a proper law.
Standardisation can be defined as: "A framework of agreements to which all
relevant parties in an industry or organization must adhere to ensure that all
processes associated with the creation of a good or performance of a service are
performed within set guidelines. This is done to ensure the end product has
consistent quality, and that any conclusions made are comparable with all other
equivalent items in the same class."
Thus, standardizing the rulings would make it easier for both companies and
ordinary people to understand it better. "The lack of standardized religious
decisions leads to uncertainty, confusion, and unease among scholars and
investors. This situation restricts the industry from reaching its potential
because a number of inefficiencies arise from the lack of standardisation. For
example, different interpretations of Shari'ah mean that one Islamic bank may
not be able to accept or use as a model another Islamic bank's products, which
can stifle the integration of Islamic finance at both the national and
This is especially true for Islamic banking products that are far from being
standardized across the different jurisdictions, thus creating obstacles at the
international level. Apart from reducing the confusion and increasing
efficiency, the standardisation would increase the consistency and transparency,
reduce the costs, and provide more time for innovation. One of the suggested
solutions (although it may not be the perfect one) would be to establish an
International Shari'ah Board that will consist of the members from the all
schools of law and whose decisions will be mandatory for all jurisdictions.
In brief, this article can be concluded as follows;
i. The existing Hague Convention on Private International Law is ill suited with
the Islamic finance and consequently in appropriate to be harmonised.
ii. In relation to the above, by having its own intricacies and principals, the
Islamic finance framework is different from Commercial or trade law which is
based on Euro Centric since adaptation of 100 years ago.
iii. The author are of the view that the current existing Convention on trade
and Commerce cannot be harmonised with Islamic commercial law. This is timely to
recognise the difference and not to merely harmonise!
iv. The Convention may serves as platform to leverage the freedom of contract
looking from Islamic point of view as part of Siyar.
v. The authors are of the view that OIC should promote the Convention at The
Hague level and supported by AALCO. This is due to the fact that Islamic Finance
is worldwide practiced and not merely in Islamic countries.
The issues of standardisation, as recommended above, is the issue on which,
according to many, the whole Islamic finance industry depends on. It is the
pre-requisite for this industry to go to the next level in its development and
to be able to make changes in the banking industry in general. Cross-border
transactions will be stuck with differences of opinions among Shari'ah scholars
until and unless we sit together and come up with a unified voice.
  AC 224, 240;  4 All ER 206, 214 (PC)
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(2009). A Primer on Islamic Finance. Charlottesville, VA, Research Foundation of
CFA Institute, Smolo, E. (2009). ‘Sustaining the Growth of Islamic Financial
Industry: What Needs to Be Done?' Islamic Finance Bulletin (RAM)
October-December(26): 15-23. Alvi, I. (2009, May). ‘Standardization of
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Market (IIFM).' Islamic Financial Sector Development (IFSD) Forum 2009.
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Institute, Quoted from Smolo, Edib, Marjan and Hakimah, International Treaties
for Islamci Finance, AAIOFI Bahrain, 1-2 December 2010.
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