Implications of the Selection of Islamic Law in European Private International Law

The English Court of Appeal in Beximco v. Shamil Bank chose to apply only English law in a breach of contract case, even though the choice of law clause in the contract at issue also selected Islamic law. The court cited three main reasons for this decision. First, article 3(1) of the Rome I Convention “contemplates” that a contract can be governed only by the “law of a country,” and there is no mention of the application of a “non-national system of law such as Sharia law.” Second, Islamic law does not consist of “principles of law” but instead a system of principles which “apply to other aspects of life and behaviour.” Third, even if Islamic law was interpreted to include principles of law, there is no consensus among the Islamic legal community as to what they would be when applied to a financial transaction.

As this note will demonstrate, none of these arguments should hold weight in a contemporary European Member State court. For one thing, the court’s ruling is not consistent with the implications of the 2008 Rome I Regulation (“the Regulation” or “the Rome I Regulation”), which updates the Rome I Convention (“the Convention” or “the Rome I Convention”), both of which regulate choice of law issues in the European Union (“EU”). Although the Rome I Regulation was passed four years after the Shamil Bank decision, the content and legislative history of the Regulation suggest that it should be understood to support the validity of non-state sources of law like Islamic law.

For another, the Shamil Bank decision misconstrued the nature of Islamic law. Islamic law’s approach to financial issues is demonstrably specific enough to enforce, as is evidenced by the fact that international arbitration proceedings have no difficulty enforcing choice of law clauses which select Islamic law.

The weaknesses of the court’s arguments are not the only reason that future European Member State courts should not follow the reasoning of the Shamil Bank decision. In a global system that is trending toward prioritizing party autonomy, as evidenced by the Rome I Regulation and The Hague Principles on Choice of Law in International Contracts (“the Hague Principles”), European Member State court systems should be more open-minded about enforcing the legal systems that parties choose to rely upon in negotiating and drafting their contracts. This is especially true when the contract at issue selects both state law and non-state law, as was the case in Shamil Bank. If parties choose, as they did in that contract, to apply English law “in the spirit” of Islamic law, it would be disrespectful of their autonomy—and would materially alter the nature of the bargain they have entered into—for the court to choose to apply only English law, as the English Court of Appeal did. This is not to say that courts should be forced to apply parties’ selection of all types of non-state law, only those systems that are demonstrably specific enough to administer, as Islamic law is.

This note will contend that even though no European Member State court has dealt with the application of Islamic law directly since the 2004 Shamil Bank decision, to the best of this author’s knowledge, if the issue were to arise again, courts should not follow the reasoning of the Shamil Bank decision.