Islamic Law and the Governance of State Contracts in Investor–State Arbitration:

Legal Pluralism, Normative Tensions, and the Prospects for Harmonisation

Maged Shebaita and Ahmad Ghouri

 

ABSTRACT: This article examines the interaction between international investment law and Islamic legal principles in the governance of state contracts, focusing on points of convergence and tension within investor–state dispute settlement. In contractual settings where Islamic law shapes the applicable framework, whether chosen by the parties or applied as the domestic law of a Sharīʿah‑influenced jurisdiction, key lex mercatoria norms such as pacta sunt servanda, good faith, unjust enrichment, and investor protection are not only perceived as difficult to reconcile with Islamic doctrines, but the very existence of their equivalents or functional parallels in Islamic law is often questioned. Through doctrinal and comparative analysis, this article argues that Islamic law offers a coherent and substantive set of contractual principles compatible with contemporary international practice, yet remains infrequently engaged within arbitral reasoning, revealing the limits of legal pluralism in the current system. It further shows that assumptions about the internal fragmentation of Islamic law and its alleged incompatibility with Western legal norms contribute to its limited consideration in investor–state arbitration. The article proposes a more inclusive interpretative framework that accommodates Islamic legal reasoning within investment governance, thereby enhancing predictability, fairness, and respect for legal diversity.