ABSTRACT
Most Islamic finance disputes in Malaysia are decided through litigation before the civil courts. If the dispute involves a Shari’ah question, the civil court judge is obliged by law to refer such a question to the designated Shari’ah Advisory Council for a ruling which then becomes binding on the court. This arrangement ensures that both the civil and Shari’ah aspects of Islamic finance agreement are duly recognized and enforced. It also ensures that the Shari’ah questions are answered by a competent Shari’ah scholars and not by a civil court judge who may lack the necessary Shari’ah expertise. The statutory provisions which provide for such an arrangement have been criticized by some for taking away the judicial power of the court. The constitutionality of these provisions is currently being considered by the Malaysian Federal Court. The chapter also explores alternatives to litigation, especially mediation and arbitration. Court-annexed mediation appears to be a viable alternative. The Malaysian judiciary has shown a strong commitment and support for it. Arbitration through the Asian International Arbitration Centre which is based in Kuala Lumpur is another alternative. The chapter seeks to explore the strengths and weaknesses of both litigation and the alternatives, and concludes by assessing their suitability in the context of the Islamic finance industry in Malaysia.
