First of all, we would like to stress the fact that Muslims in non-Muslim countries should organize themselves in a way that enables them to have their arbitration councils and committees. The decisions of those arbitration councils and committees should be binding upon Muslims. With this, they will be in no need to resort to non-Muslim courts to dissolve their disputes unless there is a dispute with a non-Muslim individual or corporation.
Dr.Muzammil Siddiqi, former president of the Islamic Society of North America, states that: Muslims must try their utmost to solve all their problems and disputes among themselves and according to the laws of Allah Almighty. The rules of Allah are sufficient to solve not only the problems of Muslims but also the problems of all people in the world. We should be in a position to solve others’ problems rather than taking our problems to others.

In the Qur’an, Allah Almighty has commanded us saying: (O you who believe, obey Allah and obey the Messenger and those charged with authority from amongst you. If you differ in anything among yourselves, refer it to Allah and His Messenger, if you do believe in Allah and the Last Day. This is best and most suitable for final determination.) (An-Nisa’: 59)
Even in a non-Islamic society, Muslims can organize themselves in such a way that they have their arbitration councils and committees and they can make it binding upon them to take all their disputes to the Islamic arbitration.
The arbitration in civil cases is permissible in all states, as far as I know. There are of course rules and regulations for arbitration, and they must be followed, but most of our family and community disputes can be resolved according to the Shari`ah through our arbitration councils or committees.
It is very much needed that we Muslims in America establish our Islamic arbitration councils. Recently some Muslims in Canada established such a council and they are finding it very useful. We should try to establish such programs in our own areas.
Going to the non-Muslim courts may be permissible if you have a dispute with a non-Muslim individual or corporation. You have every right to demand what is your due without making any false or exaggerated claims. A Muslim must never file a false lawsuit against any person whether a Muslim or non-Muslim.
Also, if you have a dispute with another Muslim and he/she is not willing to accept Islamic arbitration, and you have no choice except to seek the help of non-Muslim courts then you are allowed to seek that help. The burden of the refusal of Islamic judgment will be upon him or her who refused that judgment.
Another situation will be if a Muslim files a false lawsuit against you and you are a defendant. In this case, you are allowed to defend yourself, but if there is any possibility to make a reasonable and
just settlement out of the court then one should not hesitate to accept that. Resolution of disputes is much better than prolonging the disputes.
Muslims should be serious with the law of Allah. They should not play games with the Shari’ah. Some people compare their advantages according to the Shari’ah or non-Islamic laws. If they find that the Shari’ah can give them more, they seek Islamic judgment otherwise they go to the non-Islamic rules. This behavior is nothing but sheer hypocrisy.
It is also important to keep in mind that it is haram according to the Shari’ah to take a penny from another person with false or exaggerated charges and accusations. Whatever is not yours by the law of Allah can never become yours, regardless of the judgment of any court. The Islamic rule states that ‘the judgment of the judge cannot make the forbidden permissible nor the permissible forbidden.’ The Prophet (peace and blessings be upon him) is reported to have said: “I am a human being. You bring your disputes to me for judgment. Perhaps one of you present his case better than the other and I make a judgment in his favor according to what I hear. So to whomsoever I give that which was (actually) the right of his brother, I have given him a piece of hell.” (Reported by Al-Bukhari and Muslim)