Liquidated Damages in Cross-Border Trade Agreements: A Comparative Legal and Islamic Perspective

Abstract

This paper provides a comparative analysis of liquidated damages in international trade, focusing on their treatment under common law, civil law, and Islamic legal traditions. It highlights the fragmented legal landscape, where international instruments such as the CISG, PECL, and PICC have sought to harmonize approaches but remain either cautious or non-binding. Special attention is given to Islamic jurisprudence, tracing its evolution from classical objections based on gharar (uncertainty) and ribā (usury) to modern reforms by institutions such as the OIC Fiqh Academy and AAOIFI, which permit compensatory clauses under strict conditions. Case studies of China and Pakistan illustrate pragmatic approaches: China's two-way judicial adjustment with a 30% threshold, and Pakistan's hybrid system balancing common law and Islamic principles. The paper concludes that, despite some convergence, substantial legal diversity persists, emphasizing the need for a unified global framework for liquidated damages.