Choice Of English Governing Law Upheld Over Arguments Of Non-Shariah Compliance

Dana Gas PJSC (a company incorporated under the laws of the United Arab Emirates) v Dana Gas Sukuk Ltd and others [2017] EWHC 2928 (Comm)

In 2007, Dana Gas raised US$1 billion of financing (restructured in 2013) through the issue of Trust Certificates (Sukuk). These were structured to be Shari'ah compliant. Under the transaction, Dana Gas Sukuk Limited (the Trustee) entered into a UAE-law-governed mudarabah agreement (the Mudarabah Agreement) with Dana Gas. This provided that Dana Gas would invest the Sukuk issue proceeds in certain Shari'ah compliant assets (the Mudarabah Assets) in accordance with a pre-agreed investment plan, in order to generate sufficient income to enable the Trustee to make the periodic distribution of amounts to holders of the Sukuk. To ensure that the Sukuk would be redeemed in full on any scheduled or early redemption, Dana Gas and the Trustee also entered into an English-law-governed Purchase Undertaking. Under the Purchase Undertaking, the Trustee had the right following certain events, to require Dana Gas to buy the Mudarabah Assets for a pre-defined exercise price. Dana Gas was required to pay the exercise price into a specified transaction account (which was held on trust by the Trustee for the holders of the Sukuk), and the transfer of title to the underlying Mudarabah Assets was then to take place by way of a separate sale agreement (the Sale Agreement).

In June 2017, Dana Gas announced that it had received a legal opinion to the effect that the Sukuk was not compliant with Shari'ah law, and that the Mudarabah Agreement and the Sale Agreement were therefore unenforceable under UAE law. The judge in the English proceedings accepted, for the purpose of the hearing before him, that this was correct.

Dana Gas asserted that, given the unlawfulness of the transaction under UAE law, the English-law-governed Purchase Undertaking was also unenforceable as a matter of English law, for reasons that: (i) on a proper interpretation of the Purchase Undertaking, the obligation to pay was conditional on a lawful transfer of assets; (ii) the Purchase Undertaking was void for mistake; and (iii) the Purchase Undertaking was unenforceable on the grounds of public policy.

The judge held that, while an English court would apply UAE law to the question of the validity and enforceability of the UAE law-governed agreements, it would apply English law to those issues as they related to the English law Purchase Undertaking.

Dana Gas...