No Implicit Requirement of Sharia Mediation or Arbitration

"Movants ... argue[] that Plaintiff's complaint fails to state a claim because the 'loan documents reflect the parties' agreement that Sharia law would govern their contractual relationship' and that '[p]ursuant to age old Islamic principles, parties are to pursue the alternative dispute resolution processes of mediation or arbitration before seeking adjudication of their quarrels.'"

From Malayan Banking Berhad v.  Park Place Dev. Primary LLC, decided Monday by Justice Francis Kahn, III of the New York trial court:

This is an action to, inter alia, foreclose on two mortgages … [with a total amount of $174 million] …. Movants … argue[] that Plaintiff's complaint fails to state a claim because the "loan documents reflect the parties' agreement that Sharia law would govern their contractual relationship" and that "[p]ursuant to age old Islamic principles, parties are to pursue the alternative dispute resolution processes of mediation or arbitration before seeking adjudication of their quarrels."

No said, the court:

That the parties structured the disputed transaction to comply with Sharia law does not ipso facto require the agreement be interpreted in accordance with same. The parties expressly agreed in Article 21.16 of the Building Facility Agreement that "matters of construction, validity and performance, this agreement, the notes and the other facility documents and the obligations arising hereunder and thereunder shall be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts made and performed in such state (without regard to principles of conflicts of laws)" [emphasis added]." The parties also expressly and unconditionally waived "any claim to assert that the law of any other jurisdiction governs this agreement, the notes and the other facility documents."

Also contained in the Building Facility Agreement was a merger clause that provided the "… [o]bligor agrees that it has not and will not rely on any custom or practice … or on any course of dealing … unless such matters are set forth [in writing] …." Had the parties intended to be bound by some other law or the determination of a religious tribunal they could have specifically agreed to same.

Further, nothing in the agreement provided that arbitration or mediation was a condition precedent to litigation. It is established that, "an agreement to arbitrate 'may not be implied or depend upon subtlety for its existence.'" Although New York law recognizes "[i]mplied or constructive conditions … those [are only] 'imposed by law to do justice.'" Here, the parties were sophisticated business entities, dealing at arm's length and represented by prominent counsel. These circumstances do not justify resort to equitable principles or the implication of significant unbargained for contractual obligations.

Accordingly, the branch of Movants' motion to dismiss the complaint for failure to state a claim based upon a failure to seek arbitration or mediation pursuant to Sharia law is denied….