Dana Gas PJSC (a company incorporated under the laws of the United Arab Emirates) v Dana Gas Sukuk Ltd and others  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 argued that, as the Mudarabah Agreement was unenforceable, the Trustee never acquired title to the Mudarabah Assets, and that the Trustee's ability to transfer such assets was a condition to Dana Gas's payment of the relevant exercise price under the Purchase Undertaking. The judge disagreed, holding that the payment of the exercise price was a prior step to the transfer of the Mudarabah Assets and was not conditional on it.
Dana Gas also argued that the Purchase Undertaking was void for mistake because the parties entered into it on the mistaken assumption that the Mudarabah Agreement and Sale Agreement were lawful and enforceable under UAE law, and that the Trustee had valid rights to the Mudarabah Assets. The judge noted that, if the parties had expressly or impliedly agreed what would happen if a certain event occurred, there would be no gap in the drafting of the contract and the doctrine of mistake could not apply. On the drafting in this case, there was no gap in the contractual framework. The parties had agreed at the outset that the risk of events of this kind lay with Dana Gas. As such, an argument of mistake was not available.
Dana Gas argued that as a result of Article 9(3) of the Rome I Regulation, the court was required to take into account the enforcability (or otherwise) of the Purchase Undertaking in the UAE. Article 9(3) provides that …."Effect may be given to the overriding mandatory provisions of the law of the country where the obligations arising out of the contract have to be or have been performed, in so far as those overriding mandatory provisions render the performance of the contract unlawful"…Dana Gas argued that all of the obligations under the Purchase Undertaking had to be performed in the UAE, and therefore UAE laws were relevant.
The judge disagreed, finding that the place of performance was in England. Accordingly, Article 9(3) was not applicable and the court did not need to consider any overriding mandatory provisions of UAE law when interpreting the Purchase Undertaking.
The case provides an interesting demonstration of how English courts deal with conflicts of laws where more than one legal system applies in relation to the same overall transaction, and there are undoubtedly points of interest for those drafting future sukuk agreements.