Settlement of Disputes and the Islamic Financial Institutions (IFIs)

Yusuf Sani Abubakar*

Faculty of Shariah and Law, Sultan Sharif Ali Islamic University, Brunei Darussalam
Seeni Mohamed Nafees
Faculty of Shariah and Law, Sultan Sharif Ali Islamic University, Brunei Darussalam
Sulaiman Dorloh
Faculty of Shariah and Law, Sultan Sharif Ali Islamic University, Brunei Darussalam
Rajali Haji Aji
Faculty of Shariah and Law, Sultan Sharif Ali Islamic University, Brunei Darussalam

Article Information Abstract:

Suggested Citation: This paper investigates mechanisms of settlement of disputes at the
Abubakar, Y.S., Nafees, S.M., Islamic Financial Institutions (IFIs) as it is natural to have
Dorloh, S. & Aji, R.H. (2023). disagreements between different parties involved in Islamic banking
Settlement of Disputes and the and finance business. The paper adopts a qualitative methodology
Islamic Financial Institutions where the data are taken from journals, books, websites etc. In
(IFIs). European Journal of Theoretical
analyzing the data obtained from the sources, content analysis was
and Applied Sciences, 1(3), 118-127.
used. It is found that dispute settlement at the Islamic Financial
DOI: 10.59324/ejtas.2023.1(3).11
Institutions (IFIs) can be both through litigation as well as
* Corresponding author:
Alternative Dispute Resolution (ADR). Currently, parties to Islamic
Yusuf Sani Abubakar
banking and finance dispute prefer to settle their dispute amicably
e-mail: [email protected]
through arbitration. Moreover, many arbitration centers on dispute
resolution for parties in Islamic banking and finance have been
established. However, there are certain challenges in arbitration that need to be overcome for the
arbitration to be more effective. The researchers put forward certain recommendations on how to
improve arbitration to be more effective in settling dispute between parties in Islamic banking and
finance.

Keywords: Islamic finance, dispute resolution, Islamic financial institutions (IFIs), litigation, alternative dispute
resolution (ADR).

Introduction ADR as a mechanism for settling disputes

between Islamic banking and finance disputant
Basically, disputes under Islamic banking and parties. Thus, using arbitration as a means of
finance are settled through two mechanisms, i.e., settlement of dispute is getting popularity,
litigation as well as alternative dispute resolution particularly in the Middle East, Southeast Asia,
(ADR) that consists of arbitration and and Africa. Arbitration institutions are being
mediation. There are various cases reported on established in those regions for the sake of
the settlement of Islamic banking and finance settlement of disputes that may likely arise from
disputes through litigation. However, there have parties of Islamic banking and finance.
been calls by legal experts on the adoption of

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Indeed, arbitration is not new to the Muslim jurisdictions are well respected, and enforcement
society as it has been in practice since over 1400 is more effective (Maita, 2014).
years ago. Islam always encourages settlement of Malaysia is one of the leading countries that are
disputes amicably to avoid hostility and more advanced in Islamic banking and finance,
acrimony. Arbitration is known as tahkim in hence there were some cases that occurred in the
Islam and there are various Qur’anic verses and field of Islamic banking and finance that were
Prophetic traditions in support of it. referred to litigation. One of these cases was
This paper will investigate the methods for Bank Islam v Adnan Omar [1994] 3 CLJ 735,
settlement of disputes in the Islamic banking and where in this case the defendant argued that as
finance disputes i.e., litigation and alternative the plaintiff was an Islamic bank, the civil court
dispute resolution (ADR) and make some shall have no jurisdiction to hear the case as
recommendations on how to improve the Article 121(1A) of the Malaysian Federal
arbitration process of settlement of disputes by Constitution mentions that civil courts shall
the Islamic banking and finance parties so that have no jurisdiction over cases under the
the parties will have confidence in referring their jurisdiction of the Shariah court. The plaintiff
disputes to arbitration to get amicable counters the argument by saying that Bank Islam
settlements. is a corporate body and has no religion and
therefore it is not under the jurisdiction of the
Shariah court (Nik Norzrul Thani at al.,
Methodology 2003:93). However, the High Court held that the
defendant was bound to pay the whole amount
This is library-based research that adopts
of the selling price based on the grounds that he
qualitative method of research. Data utilized are
knew the terms of the contract and knowingly
secondary that includes books, journals, websites
entered into the agreement. In this respect, the
etc. In analyzing the data obtained from the
court applied the classic common law approach
sources, content analysis has been adopted.
where the parties are bound with the terms and
conditions of the contract. The court did not
look into the issue further whether BBA facility
Settlement of Dispute at the Islamic involves an element not approved by the
Financial Institutions (IFIs) Shari’ah as stipulated under the IBA and the
Generally, dispute settlement in Islamic banking BAFIA.
and finance is done through two ways; namely In Dato’ Hj. Nik Mahmud bin Daud v Bank Islam
litigation where courts are needed in settling the Malaysia Berhad [1996] 4 MLJ 295, the High court
disputes and settlement of dispute out of court in Malaysia decided that bay bithaman ajil does not
known as alternative dispute resolution (ADR) amount to a complete sale but only a process
that consists of arbitration and mediation needed for the bank to facilitate the financing.
(Labanieh et al., 2019). And in Arab- Malaysia Finance Bhd v. Taman Ihsan
Litigation Jaya Sdn Bhd & Ors; Koperasi Seri Kota Kota Bukit
Cheraka Bhd (Third Party) And Other Cases [2009]
Parties to Islamic banking and finance dispute 1 CLJ 419 (High Court), Abdul Wahab Patail J
normally prefer litigation in their settlement of decided that the bay bithaman ajil (BBA) was not
dispute instead of alternative dispute resolutions a valid facility under the Shari’ah. However, in
(arbitration and mediation) as they believe it will Bank Islam Malaysia Berhad v Lim Kok Hoe & Anor
provide them with more certain and effective And Other Appeals [2009] 6 CLJ 22, in overruling
result than ADR. For a long time, it has been a the decision of the High Court, the Court of
norm in the Middle East for parties involved in Appeal stated that “judges in civil court should not
an Islamic banking and finance contract to take upon themselves to declare whether a matter is in
choose English or New York law to govern the accordance with the Religion of Islam or otherwise”. The
contracts. This is because the laws of these two

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judgement decided that only principal sum can Alternative Dispute Resolution (ADR)
be covered (Jamal et al., 2011). Alternative Dispute Resolution (ADR) is out of
In Mohd Alias bin Ibrahim v. RHB Bank Berhad, court mechanism of dispute settlement. The
Suit no. D- 22A-74-2010, where in this case the following is detailed description of it:
plaintiff asked a fundamental question i.e., the Concept of Alternative Dispute Resolution
constitutional basis of the validity of section 56 (ADR)
and 57 of the Central Bank of Malaysia Act, 2009
(Act 701). According to the plaintiff, the Alternative Dispute Resolution (ADR) consists
parliament is not supposed to enact any law of arbitration and mediation (Labanieh et al.,
awarding the Shariah Advisory Council (SAC) 2019). Arbitration is defined as ‘resolution of
the judicial power of the court where there is no dispute by a person (other than a judge) whose
express provision or clause in the Federal decision is binding’ (Oran, 2000). It is also
Constitution to that effect. However, the court referred to as ‘The determination of a dispute by
decided that if the court refers any question to one or more independent third parties (the
the SAC as provided under section 56(1)(b) of arbitrators) rather than by a court’ (Martin,
Act 701, the duty of the SAC is confined to 1997). In brief, arbitration refers to settlement of
ascertainment and not determination of the disputes out-of-court with the help of a third
Islamic laws regarding the question and this is in party and its decision is binding. Arbitration is
line with section 52(2) of Act 701 (Jamal et al., the well-known method in alternative dispute
2011). resolution (ADR) and it is known as an arbitral
method for its resemblance to judgement in
In an attempt to adopt Islamic Law as means of litigation related to its decision that is done by a
dispute resolution in civil courts, the parties to neutral third party and at the same time binding
Islamic banking and finance have resorted to on the parties in the dispute.
inserting Shariah law as their choice of law while
entering into the agreement. In the famous case Alternative Dispute Resolution (ADR) in
of Shamil Bank of Bahrain v. Beximco Pharmaceuticals Islam
(the Shamil case)", in the agreement, which was Arbitration is not new to Muslim community as
Islamic Murabaha, the governing law clause it has been practiced for over 1400 years. Islam
clearly mentions that: “Subject to the principles encourages establishing harmonious relationship
of the Glorious Shariah”, this agreement shall be between people and strongly discourages
governed by and construed in accordance with hostility and confrontation in any dispute that
the laws of England. However, both the High may arise, so that it can be resolved amicably
Court and the Court of Appeal rejected the (Dahlan, 2018). Arbitration in Islamic law is
defendant’s contention that the agreement is known as tahkim which is a dispute resolution
unenforceable and invalid for contravening the mechanism that has been practiced widely in the
Shariah principles and held that the principles of pre-Islamic period in Arabia. After the coming
Shariah are not applicable to the agreement. By of Islam, it has been further supported and its
this decision, the English courts’ precedent on procedures have been efficiently improved to
Islamic banking and finance governing law has help the attainment of fairness and justice
been established which was endorsed in (Oseni, 2009). Indeed, there are may Qur’anic
subsequent cases. Consequently, various banks verses that support the utilization of tahkim in
stopped inserting Shari’ah reference in their settlement of disputes (Labanieh et al., 2019).
agreement, and that indicates that the parties to
the agreements waived their rights for referring Alternative Dispute Resolution (ADR) at the
to Shariah in case of a dispute (Maita, 2014). Islamic Financial Institutions
Although, it is good to have various Islamic
financial institutions conducting Islamic banking
and finance businesses by offering different
instruments or transactions, it is also natural that

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disputes between parties involved in these Southeast Asia region that presented themselves
businesses will also be increasing (Mohamed et as arbitrators for Islamic banking and finance
al., 2015). It is obvious that the practice of disputes by utilsing conventional rules and
referring disputes arising between parties in procedures, other institutions were established
Islamic banking and finance business to solely for the purpose of offering arbitration
litigation is not serving the purpose upon which based on the principles of the Shariah (Maita,
the industry has been established. There are 2014). The following are some of these
various challenges in referring to litigation under important centers:
the foreign law of any jurisdiction between the
parties in Islamic finance business, such as lack • The Asian International Arbitration
of enforcement, non-compliance with Shari’ah Centre (Malaysia) (“AIAC”)
principles etc. According to Engku Rabiah The Asian International Arbitration Centre
Adawiah, the suitable way of getting out of this (Malaysia) (“AIAC”) is situated in Malaysia’s
judicial discrepancy is the adoption of ADR, so capital Kuala Lumpur. Formerly known as Kuala
that parties can appoint persons who are Lumpur Regional Centre for Arbitration
knowledgeable on the relevant laws and (“KLRCA”). The center is regarded as first of its
principles to settle their dispute. Apparently, kind which was established under the Asian
there is now a widespread promotion of African Legal Consultative Organization
adoption of ADR as a mechanism for the (“AALCO”), an international organization
settlement of dispute between parties in Islamic consisting of 47 states as members from across
banking and finance business. For example, in the region. It was formed pursuant to an
the case of Sanghi Polyesters Ltd. (India) v. The agreement between Malaysia and AALCO. It is
International Investor KCSC (Kuwait) [2001] C.L.C. a non-profit, non-governmental international
arbitration was adopted as a mechanism for arbitral institution. This center introduced and
dispute resolution arising from the Islamic adopted a set of arbitration rules (AIAC i-
finance agreement and London was selected as Arbitration Rules 2021) for settlement of
the place of the arbitration. It was also stated that Islamic banking and finance disputes. The rules
dispute shall be governed by the Laws of provide parties freedom to choose both the
England except where it is inconsistent with arbitrators and applicable law in case of dispute
Islamic Shari’ah where the Shari’ah will prevail in (https://www.aiac.world/About-AIAC).
this situation. The arbitrator who was an expert
Although, the center has specific conventional
in Islamic law awarded the principal and the
arbitration laws, it also has Islamic arbitration
profit claims but disallowed the additional
laws known as ‘AIAC i-Arbitration Rules
damages which although compliant with the
2021’. The disputant parties are free to select
English law but would conflict with the Shari’ah.
the law they desire to be the governing law in
The losing party challenged the award in English
case of a dispute. The center Model I-
court and the judges ruled that the award stands.
Arbitration Clause provides that: “Any dispute,
(Maita, 2014). This case was the opposite of
controversy, difference or claim arising out of or relating to
Shamil’s case as the English court judges
this contract, including the breach, termination or
considered the Shariah in their ruling.
invalidity thereof, as well as any non-contractual claims,
Alternative Dispute Resolution (ADR) shall be finally determined by arbitration, administered
Centers by the AIAC, in accordance with the AIAC i-
As the Islamic finance industry is experiencing a Arbitration Rules in force at the time of the
rapid growth, a lot of arbitration centers in commencement of the arbitration ”
different regions are being established to take (https://www.aiac.world/About-AIAC).
advantage of settlement of disputes that may • The International Islamic Center for
likely arise from the Islamic banking and finance Reconciliation and Arbitration (ICRA)
transactions. Although, there are various
institutes in the Middle East as well as the

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This center was established as a result of the modified so as to consider the nature and
agreement entered between the United Arab character of arbitrations to be conducted in
Emirates (UAE) and the General Council of accordance with the Shari’ah Rules of
Islamic Banks and Financial Institutions, Arbitration of the center. The arbitrators can be
representing the Islamic finance industry in of any sex as well as of any nationality or religion,
2004. It started operation in January 2007. The unless when specified by the parties in the
center is prepared to settle any kind of agreement or by provision of law. Additionally,
commercial or financial dispute between there is a list of arbitrators listed on the website
commercial and financial institutions that of the center who seem to be knowledgeable on
express their readiness to comply with Shariah in finance as well as Shari’ah law
settling their disputes. The Center model (http://www.arabcci.org/IMAC_aboutus.htm).
arbitration clause for Islamic arbitration However, there is no clarity on how the center
provides that: “If any dispute arising between the ensures Shari’ah compliance in its proceedings.
parties out of the formation, performance, interpretation, But no many materials are found related to the
nullification, termination or invalidation of this agreement center’s activities, which seems to suggest that it
(contract) or arising therefore or related thereto, the is dormant except for organizing trainings and
dispute shall be referred to an arbitration panel seminars in Islamic arbitration and finance
constituted from uneven [group] of arbitrators for a final (Maita, 2014).
and binding decision in accordance with the rules and Challenges of Alternative Dispute
procedures specified in the statute of the International Resolution (ADR)
Islamic Center for Reconciliation and Arbitration in
Dubai " (Maita, 2014). The following are certain challenges facing
Alternative Dispute Resolution (ADR):
The Center’s procedures provide that the
arbitrators must abide by the laws the parties in • Becoming More Expensive
the dispute decide to choose and, in all cases, the
The use of arbitration has increased, and lawyers
panel must eliminate provisions that are not in
actively engage in arbitral procedures, which
line with rules of the Shari’ah. Moreover, the
made arbitration unattractive, and it became
panel may use in settling the dispute whatever it
regular just like litigation, and this made it less
considers applicable from among the various
attractive for settlement of disputes (Syed A.
opinions of schools of Islamic thought, opinions
Rahman & Mokhtar, 2017). Basically, parties
of Shariah supervisory board of the Center, and
normally prefer arbitration as it is informal and
rulings of Islamic Fiqh academies. However,
less costly (Goode, R., 1992), hence parties
despite claim by the center to be the only
expect arbitral proceedings to be informal,
accredited body to obtain Shariah compliant
which will permit them to avoid an oral hearing.
provisions by the Islamic finance industry, but
But this informality in arbitration is no longer
no published case record is traced to the center
present as it should (Abdul-Qadir Zubair, 2014),
(Maita, 2014).
as on many occasions arbitrators tend to focus
• International Islamic Mediation & on formal requirements (Welser & Wurzer,
Arbitration Center (IMAC) 2008). The requirement of formality in the
arbitration procedures would be more time
This center was founded as an independent
consuming and this may affect Islamic finance
international institution in Hong Kong following
cases (Friedland & Mistelis, 2015). Thus,
a resolution by the Arab Chamber of Commerce
disputants in Islamic banking and finance no
& Industry in July 2008. No detailed rules are
longer consider it as very efficient. Various
provided on the website of the center, but it was
elements contribute to creating burden to the
stated that arbitration administered by the center
dispute parties in arbitration, such as the high
are governed by arbitration rules, which basically
cost, as they are expected to pay the arbitrators’
adhere to UNCITRAL rules of arbitration.
expenses and fees which are extremely high
However, some aspects of these rules have been
(Abdul-Qadir Zubair, 2014). One more reason

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for the high cost of arbitration is that parties and clause before the occurrence of the dispute
arbitrators may be required to travel to attend (Olayemi & Al-Zabyani, 2014). Still, it is not
the arbitration sessions (Kohler & Schultz, 2015) advisable to force the dispute parties to adopt
if they are from different jurisdictions. However, arbitration as they have the right to choose the
the increase in the usage of technology is likely method they feel is preferable to them other than
to lessen the cost of arbitration as travelling may arbitration. Thus, it is important to explain the
not be necessarily required (Labanieh et al., advantages of adopting arbitration as a dispute
2019). resolution mechanism to the potential dispute
parties in Islamic banking and finance and to
Additionally, parties under the auspices of AIAC
include the arbitration clause in the contracts as
may need to pay additional expenses, such as
this will increase parties’ confidence in
proper accommodation for the arbitrators,
arbitration (Labanieh et al., 2019).
interpretation facilities, video or
teleconferencing etc. As for Islamic finance • Bias in Arbitration Processes
cases, the parties are required to bear the
expenses for reference to the relevant council or Bias may contribute to the decrease of adopting
Shari’ah expert who may be appointed by the arbitration as a mechanism of dispute resolution
arbitral tribunal. These huge expenses may if the arbitrators fail to perform their duties
discourage the disputants from refusing fairly. Although, it is very rare for an arbitrator
arbitration in settling their dispute (Labanieh et to display antipathy or prejudice against any
al., 2019). Thus, it is a fallacy to think that party in the arbitration (Rashid, 2005), however,
arbitration is cheaper than litigation (Abraham, racial, or ethnic discrimination and bias from
2006) and at times it may be even more arbitrators against parties from Asia and Africa
expensive than litigation (Rashid, 2008). have been traced in many reported cases
(Asouzu, 2001). In a related case that happened
• Feeling of Weakness and Acrimony in Malaysia, an arbitrator under AIAC, with the
name Yusof Holmes Abdullah, a British
Sometimes, parties who prefer to use arbitration
national, was fined and jailed for being biased in
in settling their dispute may assume that
favour of a company (JMR Construction Sdn
choosing this method of settlement may be
Bhd) he previously consulted. According to
perceived as weakness. Generally, arbitration
speculation, this act almost ruined AIAC’s
helps in achieving a ‘Win-Win’ situation as
reputation. However, on 23 June 2013, AIAC
adversarial feelings between parties is lesser
along with 40 other multinational corporations
when compared to litigation which normally
signed Corporate Integrity Pledge (CIP) to
leads to ‘Win-Lose’ situation (Miskam & Abd
emphasize on commitment to impartial tribunal
Hamid, 2011). However, even in arbitration
proceedings and to fight corruption in the field
hatred or deep negative feelings cannot be
of arbitration (Labanieh et al., 2019).
eliminated completely (Kawamura, 2017) as
human beings have emotions and feelings which Some other international organizations and
is difficult to change (Labanieh et al., 2019) and arbitration centers have also issued similar rules
this may discourage the parties from attending to combat bias in arbitration. For instance, the
the arbitration session in order to reach to a International Chamber of Commerce (ICC) Rule
compromising solution (Kawamura, 2017). 13(5) of Rules of Arbitration 2012 stipulates that:
However, the negative feelings can be eased if “the sole arbitrator or the president of the
the dispute parties are not required to be present arbitral tribunal shall be of a nationality other
during the arbitration session (Olayemi & Al- than those of the parties” (Labanieh et al., 2019).
Zabyani, 2014).
• Enforcement of Arbitral Awards
Moreover, using arbitration as a mechanism of
dispute settlement in Islamic banking and The adoption of arbitration in dispute resolution
finance may be a bit difficult, especially where of Islamic banking and finance is gaining
momentum because of the many advantages it
the parties are unable to agree on the arbitral

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has. However, the parties would be reluctant to • Traditional Arbitration Does not suit
embrace arbitration if the arbitral awards are not Small- Claim of Dispute
enforced like the decision of courts’ judgement
(Nacimiento & Barnashov, 2010). Hence, many Usually, dispute settlement related to small
international conventions and treaties have been claims are not available in the conventional
enacted to ensure that arbitral awards are methods of dispute settlement due to the
implemented just like decisions in litigation. monetary limit for the registration of
Example of this is the New York Convention on commercial cases that are normally mentioned in
the Recognition and Enforcement of Foreign the statute (Oseni & Omoola, 2015). For
Arbitral Awards 1958 that strives to ensure that example, in Malaysia the courts’ jurisdiction to
foreign arbitral awards from participating settle a dispute depends on the monetary
countries are recognized and enforced by the jurisdiction, because the court cannot grant
courts in their respective countries (Labanieh et damages more than the limit assigned to it
al., 2019). The binding nature of arbitral awards (Hasshan, 2016). The Malaysian lower courts
would make arbitration an important, unique, adjudicate smaller claims, while the Malaysian
and perfect mechanism for dispute resolution high courts adjudicate larger claims (Hasshan,
and an alternative to litigation (Hörnle, 2009). 2016). Hence, the parties to Islamic banking and
finance dispute may be hesitant to submit their
Arbitration may not always be a suitable method dispute to arbitration because it may be costly to
of dispute resolution for parties involved in them, particularly when the amount of the claims
international Islamic finance dispute because of is small (Spatt, 1998). Therefore, to assist in
the different arbitration laws adopted by settlement of small claim disputes through
different countries. For example, in an arbitration, the lawmakers need to step up to
international Islamic finance dispute involving a regulate the amount to be charged in dispute
company from Malaysia and Saudi Arabia e.g., settlement through arbitration (Labanieh et al.,
regarding Bay’ al- ‘Inah. If it is agreed that 2019).
Malaysia is the seat of the arbitration and arbitral
award is delivered in favour of the Malaysian • Judicial Intervention
company, this company cannot refer to Saudi Judicial intervention in arbitral proceedings is of
Arabian courts to enforce the award as Bay’ al- two kinds. The first one is beneficial
‘Inah is not applicable in Saudi Arabia because it intervention, e.g., to obtain an order from the
is against the Shariah and pubic policy of Saudi High Court in relation to the attendance of a
Arabia, whereas opposite is the case in Malaysia, witness to provide evidence (Act 646, s.29(2)).
as Malaysia widely apply Bay’ al- ‘Inah for it is The second one is an excessive or malignant
acceptable under the Shari’ah according to them intervention which may cause uncertainties and
and does not violate their public policy. This high costs as well as unnecessary delays which
situation will give rise to a legal conflict between can be avoided, with the purpose of converting
the two parties as a result of refusing to enforce ‘arbitration into a virtual litigation’ (Rashid,
the arbitral award for being against the Shari’ah 2005). The excessive intervention, or what is
and the public policy of Saudi Arabia. Therefore, known as localization of arbitral proceedings
it is suggested that the parties to the international allows the national courts to intervene in the
Islamic finance should ensure that the arbitral arbitral proceedings. Conversely, delocalization
award can be enforced in the law of the countries indicates that the national courts, based on the
selected before entering into the arbitration national laws, do not have authority for
agreement to ensure that the arbitral award does intervention in the arbitration proceedings.
not violate any public policy of the countries.
Furthermore, the main players in Islamic finance In Malaysia, Act 646 aims to reduce the
industry should try to adopt a uniform intervention by the national courts and to
arbitration law that is consistent between their minimize interference of the courts in the
countries (Labanieh et al., 2019). arbitral awards and proceedings. However, there
are situations where Act 646 allows judicial

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intervention to some degree (Act 646, s.8). For parties will likely succeed in getting their dispute
example, the Malaysian High Court is said to settled by the Shari’ah principles.
possess right to grant various types of interim 4. Arbitral awards are final and easy to
measures in arbitral proceedings (Act 646s.11). enforce, particularly in some jurisdictions. The
Furthermore, the High Court is granted a New York Convention, which has been adopted
permission to use its authority in both domestic by over 144 countries has significantly
and international arbitration (Act 646, s.11(3)). harmonized mechanism for the enforcement.
However, Act 646 has significantly succeeded in 5. Arbitration may be conducted in venues
reducing the intervention of courts in arbitration not far from home, and at the same time to
compared to the Arbitration Act 1952 (Act 93) maintain the seat or governing law of choice
(Idid & Oseni, 2014). For instance, in the case of abroad. This concern many Islamic finance
Taman Bandar Baru Masai Sdn Bhd v Dindings companies as most of them are in Muslim
Corporations Sdn Bhd [2010] 5 CLJ 83, the court countries and the seat is London or the law of
upheld the Arbitration Act 2005 (Act 646) that England is the governing law.
disallowed courts to interfere with the arbitral
awards, and then ordered courts to stop
intervening in this case. But, the court is allowed Recommendations
to intervene when there is tampering that may
The following are some recommendations:
lead to an unjust verdict in the case (Labanieh et
al., 2019). a) Litigation should be avoided as much as
possible in Islamic banking and finance disputes
Advantages of Alternative Dispute
due to many disadvantages it has.
Resolution (ADR)
b) There is a need to have standard
Generally, in comparison, arbitration has many arbitration rules applicable to all Islamic financial
advantages over litigation, which makes it institutions worldwide.
preferable. These include, inter alia, speedy c) Arbitrators should be a mixture of
settlement, autonomy, economical, flexibility, experts from both Islamic and conventional
confidentiality, finality, and enforceability of laws.
award (Blake, Browne & Sime, 2011). These d) The cost of arbitration should be as
advantages will likely entice parties to litigation cheaper as possible to encourage Islamic
including parties to Islamic banking and finance banking and finance disputant parties to resort
transactions to choose arbitration over litigation to arbitration for their dispute resolution.
(Mohamed et al., 2015). e) Despite varying opinions in different
According to Maita (2014), move towards jurisdictions, it is highly recommended that the
arbitration gives the Islamic finance industry Islamic finance industry should propose a viable
parties the following advantages: way of enforcing the arbitral awards so as not to
make the arbitration process ineffective.
1. Parties will be able to appoint the f) Judicial intervention in the arbitration
arbitrators knowledgeable in the subject matter, process should be avoided as much as possible
such as the Shari’ah law or finance, as opposed except when necessary.
to litigation where disputes are handled by
national judges who lack expertise in Shari’ah or
finance. Conclusion
2. Parties are free considerably to select
arbitration rules and institutes based on their The study reveals that both litigation and
needs and the facts of the dispute. alternative dispute resolution (ADR) are being
3. Parties have freedom to include Shari’ah utilized for the settlement of disputes between
law into the governing law clause based on their parties in Islamic banking and finance. However,
needs and facts of their dispute. Therefore, due to the various challenges in litigation, there
have been calls by experts for the adoption of

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Alternative Dispute Resolution (ADR) Hasshan, H. (2016). Islamic finance litigation:
particularly arbitration for dispute resolution Problems within the Malaysian civil courts
between parties of Islamic banking and finance structure. Jurnal Undang-Undang dan Masyarakat,
businesses. 121(20), 33-42.
https://doi.org/10.17576/juum-2016-20-03
In fact, these calls by expert have been answered
through the establishment of some centers that Hörnle, J. (2009). Cross-border internet dispute
focus more on arbitration for settling disputes resolution. United Kingdom: Cambridge
between parties in Islamic banking and finance University Press.
business. Moreover, Islamic banking and finance Idid, S.A., & Oseni, U.A. (2014). The Arbitration
parties now prefer to settle their disputes (Amendment) Act 2011: Limiting court
through arbitration. However, there are still
intervention in arbitral proceedings in Malaysia.
some challenges that need to be overcome to The Malayan Law Journal, 2(7), 1-22.
make the arbitration process more effective.
Thus, this research put forward certain Jamal, J., Mohd, N.A., Halili, K. (2011).
recommendations. Alternative dispute resolution in Islamic finance:
Recent development in Malaysia. International
Journal of social sciences and humanity studies, 3(1),
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