A recent decision by the High Court, in a case arising from a finance facility tailored to be compliant with Islamic law, illustrates both the growing trend for Islamic finance in the United Kingdom and the importance of the enforceability provisions in the contracts for such arrangements.
The case, The Shamil Bank of Bahrain EC v Beximco Pharmaceuticals Ltd and Others (2003), involves a frequently used form of Islamic contract which, in its basic form, is relatively simple in its application. Islamic law forbids the payment and receipt of interest, which means conventional loan facilities cannot be used by banks wishing to provide finance to Muslim customers. Instead, use is made of Islamic contracts, which allow alternative means of financing while always complying with the requirements of both English and Islamic law. In Shamil Bank this was done using an arrangement that can best be envisaged as two contracts of sale, taking place one after the other. The contract – which was put in place to assist the borrowers in financing a consignment of goods – prescribed that the bank would purchase the goods on behalf of the borrowers (the first sale), then, having obtained title to them, sell them on to the borrowers (the second sale), all as part of one facility. The repayment by the borrowers under the second sale took place in periodic installments over the duration of the facility.
