The recent collapse of certain Arab regimes and the subsequent rise to power of Islamic parties that call for the general application of Islamic law (sharia) will certainly generate debates about the compatibility of sharia with modern principles of justice. The uncertainty surrounding the seriousness of these politicians' calls and the general lack of knowledge about sharia among western lawyers and investors increase the worries of foreign companies regarding their projects in the Middle East. This article provides its readers with information about the principles of contract law under sharia, and demonstrates how investors who are forced to accept sharia as the law governing their disputes - either in the context of an international arbitration or a regular state court - will likely receive equal, if not more, protection than the safeguards offered by international law.
The article starts by demonstrating how the sources of Islamic law sanction arbitration. It further explores some of the unique rules of contract law under sharia (e.g., lack of procedural formalities, and the negation of state immunity), that give certain privileges to foreign investors. Such particular rules allow investors to resort to legal tricks - known as hiyal - to circumvent certain prohibitions pertaining to the charging of interest. The article's main conclusion is that should the principles of sharia be properly applied to investment disputes in the Middle East, foreign investors will likely receive more protection against abusive nationalization than they would under international law. Having said that, the possible application of Islamic law to state contracts remains uncertain at this stage, albeit not unlikely.Journal of International Arbitration