Islamic commercial arbitration and private international law: mapping controversies and exploring pathways towards greater coordination

The growth and internationalisation of Islamic finance has expanded the use and scope of Islamic commercial arbitration as a mechanism to resolve disputes arising from Shari'ah-compliant transactions. Arbitration, defined as the process whereby parties submit disputes to an arbitral tribunal, can be domestic or international, and Islamic commercial arbitration seeks validity specifically under Shari'ah rules. As cross-border Islamic commercial dealings increase, key private international law questions arise: which law applies to disputes subject to Shari'ah compliance, how public order interacts with Islamic economic principles, and whether Shari'ah-compliant awards are enforceable transnationally. The paper asks whether compliance with Shari'ah in international commercial arbitration and compliance with private international law rules are mutually incompatible, given that Islamic arbitration distinguishes between lawful (halal) and prohibited (haram) conduct, potentially creating gaps with national conflict-of-laws solutions. The article aims to map these gaps and propose pathways toward coordination, including exploring an Islamic economic public order concept and avenues through international conventions and model rules.

The article engages with scholarship and legal sources on Islamic finance and arbitration (e.g., Abdul-Rahman 2010; Farah and Hattab 2020), private international law treatises and jurisprudence (e.g., Audit 2008; Mayer and Heuze 2010), and institutional standards (e.g., AAOIFI Shari'ah Standard No. 31). It references historical and doctrinal perspectives on arbitration in Islamic law, comparative national practices (France, Saudi Arabia), and international frameworks (New York Convention, UNCITRAL Rules), highlighting ongoing debates about public order, applicable law, and enforceability across jurisdictions.

Qualitative legal methodology. The study proceeds through: (1) Desk-based comparative analysis of textual sources, including national and international legal instruments, doctrinal writings, and court rulings, juxtaposing Shari'ah-based principles applicable to commercial arbitration with private international law rules. (2) Examination of implications via actual and hypothetical ‘limit cases’ to reveal where differing formulations lead to incompatible outcomes. (3) Normative proposals to mitigate incompatibilities, notably by broadening the private international law category of public order to embed Shari'ah considerations, and by developing international conventions and model rules to harmonise practices.

• Islamic commercial arbitration introduces Shari'ah-specific validity conditions that can diverge from private international law outcomes, including: refraining from applying positive-law rules that contravene Shari'ah; and, per some juristic opinions, requiring Muslim arbitrators (with a narrow necessity exception for Muslims in non-Muslim jurisdictions).
• Substantive divergences between capitalist systems and Islamic economic principles (e.g., constraints on earning/spending, prohibitions such as riba) create friction points in applicable law analyses and award validity under Shari'ah.
• The ex ante Shari'ah review by institutional Shari'ah boards does not preclude ex post arbitral scrutiny and potential disagreement on permissibility.
• Public order remains a central gateway in private international law for refusing application of foreign law or enforcement of awards; distinguishing an ‘economic public order’ highlights how commercial and financial policies shape enforcement decisions.
• The authors propose an ‘Islamic economic public order’ concept to situate Shari'ah compatibility review within private international law categories in Muslim jurisdictions, potentially guiding when to decline foreign rules that threaten core Islamic economic principles.
• Reliance on the New York Convention enhances a shared enforcement baseline, but public policy exceptions persist; national approaches differ (e.g., France versus Saudi Arabia’s Arbitration Law Art. 2 prioritising conventions so long as they do not contravene Shari'ah).
• Diversity of Islamic jurisprudential schools (madhahib) and intra-jurisdictional differences complicate uniform enforcement of Shari'ah-compliant awards; calls exist for bodies to reduce doctrinal variance.
• Practical enforcement issues include language/translation (awards often in Arabic; French practice enforces originals, not translations).
• Model rules (ICC, UNCITRAL, UNIDROIT) influence arbitration practice; Saudi Arabia’s 2012 Arbitration Law blends Shari'ah with UNCITRAL elements. AAOIFI’s Shari'ah Standard No. 31 on Arbitration is an early sector-specific standard. IICRA’s rules exemplify reconciling party autonomy with a Shari'ah override clause and discretion to draw from various Islamic schools and fiqh academy rulings.

Addressing whether Shari'ah compliance and private international law are incompatible, the analysis shows they are not inherently so, but coordination gaps persist at the levels of applicable law, public order, and enforcement. Embedding Islamic considerations within recognised private international law constructs—principally through an ‘Islamic economic public order’—could align Shari'ah review with established enforcement controls in Muslim jurisdictions. International conventions and soft-law model rules offer pragmatic vehicles for harmonisation, enabling arbitral tribunals and national courts to anticipate and accommodate Shari'ah-based constraints without undermining transnational enforceability. Party autonomy can be preserved while ensuring that provisions contravening Shari'ah are set aside. The proposals aim to reduce legal uncertainty, promote predictable cross-border dispute resolution for Islamic finance, and mitigate tensions between religiously grounded commercial ethics and secular conflict-of-laws regimes.

Islamic commercial arbitration imposes Shari'ah-specific constraints that can misalign with private international law’s mechanisms for applicable law and award enforcement. The paper recommends: (1) recognising an ‘Islamic economic public order’ to channel Shari'ah compatibility review within private international law; (2) using multilateral or bilateral conventions to clarify applicable law, enforcement, and public policy parameters for Islamic arbitration; and (3) developing uniform model rules specific to Islamic commercial arbitration to operationalise Shari'ah principles alongside state law and international standards. Further internal harmonisation within Islamic jurisprudence is desirable to reduce doctrinal divergence. These steps would enhance the international acceptability and enforceability of Shari'ah-compliant awards and foster better integration with the global arbitration framework.

The study is doctrinal and conceptual, based on desk research without empirical data. Its proposals depend on political and judicial willingness, which may be limited in non-Muslim jurisdictions unlikely to incorporate Shari'ah into public order analyses. Significant diversity among Islamic jurisprudential schools and national legal systems may constrain uniform adoption. Language and procedural variations (e.g., Arabic awards, translation practices) also present practical hurdles.