Resolving Islamic finance disputes through international arbitration


The tendency to favor litigation -

Litigation through the courts is the most well-known method of determining disputes. A recent judgment of the UK Tax Chamber of the First Tier Tribunal published on the 15th July 2013 considered arguments of religious discrimination under the Human Rights Act 1998 and the European Convention on Human Rights (the Convention). TC:02777 Project Blue Limited [2013] UKFTT 378 (TC) concerned the amount of stamp duty land tax due on a real estate transaction which was funded by an Shariah compliant bank.

The UK tax authorities contended that such tax was payable on a higher amount than the company contended. The tribunal agreed that there was no evidence that the company was under any religious obligation to use Shariah compliant financing, such that its decisions were purely commercial: “The motives of the Appellant in structuring the transaction in the way it did are unclear. No directors of the Appellant [...] were called to give evidence. [...] Accordingly, we have concluded that the Appellant has not established that it entered into the Shariah compliant financing for religious reasons and that, therefore it has not shown that it suffered discrimination on the basis of religion contrary to Article 14 of the Convention.”

Various other factors were not deemed sufficient to enable the company to run a religious discrimination argument: for example, the bank dealt exclusively with Shariah compliant finance; the company obtained a Fatwa to certify compliance with Islamic requirements; and there was a contractual acknowledgment in the transaction’s common terms agreement that the transaction documents were consistent with Shariah principles.

Originally published in Islamic Finance News - October 9, 2013.

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