Religious Arbitration For Business Contract Disputes?

religious arbitration sharia lawAlthough many don’t realize it, the American judicial system has a rich history of applying religious principles to adjudicate business disputes. For example, important equitable remedies trace their roots to Christian ecclesiastical courts based on the concept of providing (divine) justice where there is no adequate remedy at law.

But what about settling business conflicts today through religious arbitration before a private tribunal?

For example, should two Muslim businessmen be able to resolve their differences before a private Sharia law court? Or two Jewish entrepreneurs have a beth din (rabbinical court) adjudicate their claims?

Express Agreement To Arbitrate

One of the first prerequisites to religious arbitration is to have the contract between the parties expressly provide for such alternative dispute resolution. For example, in a Pennsylvania case, the state superior court refused a request to have a conflict involving the sale of a kosher wine store submitted to a rabbinical court.

Why? Because the agreement between the parties did not provide for such arbitration. That the parties involved were of the Jewish faith was not relevant where the contract was silent on the issue of arbitration.

State Law Prohibitions

A few states have passed laws that prohibit their courts from taking into account Sharia law. If these laws are constitutional, it’s unclear whether or not a decision by an Islamic arbitration panel would be enforceable in that state from a legal standpoint (although the parties might still honor the panel’s ruling because of their faith).

Deference To Religious Arbitration

To the extent religious arbitration is a viable means of settling disputes, courts are more likely to defer to it in the context of business-to-business (B2B) matters instead of resolution of personal disputes between individuals (e.g. family law issues).

Similarly, the legal system is more likely to look favorably at a provision that provides for arbitration before a private religious tribunal if the parties are of the same faith.

If they are members of different religions, there’s a heightened risk that equal protection and due process will be unavailable to one of the parties. There also may be fundamentally conflicting beliefs on key business issues between the faiths. For example, one religion may consider any interest charged on a loan as usury while another might view only a (subjective) excessive interest rate as usury.

Have A Backup Plan

If you decide to include a religious arbitration clause in your business agreements, your business contracts lawyer should also include a fallback position for non-religious alternative dispute resolution in case religious arbitration is disallowed.

Author Mike Young, Esq.

Internet Lawyer Mike Young provides contracts and other efficient legal solutions to business owners and C-level executives of privately held companies. To get legal advice from Mike, click here to set up your phone consultation with him.

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