22/07/2026
Three words that often appear in Islamic commercial contracts—but are they legally sufficient?
When parties enter into a Shariah-compliant transaction, it is common to express an intention for the agreement to be “governed by Shariah” or by “the laws of Malaysia and the principles of Shariah.”
But what happens when a dispute arises?
Can Shariah, on its own, operate as the governing law of a contract? Does the answer differ between court proceedings and arbitration? And how does Malaysia’s statutory framework for Islamic financial business affect the position?
In her latest article, “Governed by Shariah: Governing Law in Islamic Contracts – The Malaysian Position on Regulated and Non-Regulated Transactions,” Liza Khan examines these important questions through leading authorities, including Shamil Bank, Halpern, and JRI Resources, while exploring the distinction between regulated Islamic financial business and Shariah-structured commercial transactions outside the regulated sector.
This carousel highlights some of the key insights from the article, including:
• Why a governing law clause deserves careful drafting.
• The distinction between litigation and arbitration.
• Malaysia’s statutory framework for Islamic financial business.
• The role of the Shariah Advisory Council.
• Why the governing law clause and the dispute resolution clause should be designed together—not in isolation.
As commercial transactions continue to become more sophisticated, precision in legal drafting has never been more important.
Three words—“Governed by Shariah”—may express an intention. But the real legal question is what those words are intended to achieve when a dispute arises.
I’d love to hear your thoughts.
Should governing law clauses in Shariah-compliant contracts evolve to provide greater certainty, particularly for transactions outside the regulated Islamic financial sector?
