Golden Belt v BNP Paribas (Golden Belt) is perhaps the most high profile English case on Islamic Finance for more than a decade. In it the High Court will be asked to determine an issue which has potentially enormous ramifications for Islamic Banking. Arguably it is not since Beximco Pharmaceutical Ltd and others v Shamil Bank of Bahrain [2004], when the Court of Appeal held that it was not permissible for general principles of Shari'ah law to be incorporated into a contract in addition to English law, that a decision has been so eagerly awaited by legal and banking practitioners in this field.

Golden Belt will be of particular importance to Shari'ah Boards (who comprise of religious scholars (not lawyers) with specialised knowledge of the Islamic laws on transacting) on the issue as to whether their pronouncements could amount not only to expressions of religious but also legal opinion. If the High Court

determines that pronouncements of the Shari'ah Board can amount to enforceable legal opinions, this is likely to have a significant impact on the nature of the pronouncements that Shari'ah Boards may be willing to make.

Role of the Shari'ah board

A financial institution offering Islamic Finance products or services must obtain prior approval from a Shari'ah Board to confirm that the service and/or product being offered has complied with the Shari'ah principles. The role of the Shari'ah Board is therefore absolutely critical in Islamic Finance transactions.

The facts

Golden Belt concerns a US$650 million Sukuk (Islamic Bond) issued by an SPV (acting as trustee) by the name of Golden Belt 1 Sukuk Company B.S.C (Golden Belt). BNP Paribas (London branch) was the Arranger and Sole Bookrunner in relation to the Sukuk.

The ultimate economic borrower of the Sukuk was a company called Saad Trading, Contracting and Financial Services Company (Saad). The sum of US$650 million is said to have passed from Golden Belt to Saad via

lease agreements. Under one of the lease agreements Saad purported to issue a Promissory Note in favour of Golden Belt for US$650 million. The Promissory Note was purportedly executed by the Chairman of Saad. The Promissory Note was governed by Saudi Arabian law.

The Sukuk was offered to the market by means of an Offering Circular in May 2007. The Offering Circular contained a pronouncement of the BNP Paribas Shari'ah Board which stated that that the Shari'ah Board: (i) had "reviewed the structure, mechanism and the documentation for the proposed issuance of the Sukuk"; (ii) "was of the view that...the structure and acceptable within the principles of Shari'ah"; and (iii) approved the "proposed issue of the Sukuk" (the Pronouncement).

In 2009 Saad defaulted on its obligations under one of the lease agreements. Golden Belt sought to enforce the Promissory Note. However, a dispute is ongoing in Saudi Arabia between Golden Belt and Saad as to whether the Promissory Note was validly executed since the signature on behalf of Saad was not a "wet-ink" original signature as required under Saudi Arabian law.

The dispute

Golden Belt has issued a claim against BNP Paribas in the English High Court. Golden Belt alleges, amongst other things, that the Pronouncement of the BNP Shari'ah Board amounted to a representation that the Promissory Note had been validly executed and was enforceable as a matter of Saudi Arabian law (which Golden Belt asserts, in whole, or in part, reflects Shari'ah law).

BNP Paribas deny the allegations contending, amongst other things, that the Pronouncement of the BNP Shari'ah Board was purely a religious opinion rather than a legal opinion on the validity and enforceability of the Sukuk documents.

The decision of the High Court will be keenly awaited by Islamic Finance Shari'ah Boards given the consequences and potential legal liability that could arise in respect of their pronouncements if the claim succeeds.


The authors consider it unlikely that a court will find that the opinion of the BNP Shari'ah Board amounted to a legal opinion.

First, there was no express opinion on the validity and enforceability of the Sukuk documents. The Pronouncement was in relation to the compliance of the "structure and mechanism" of the transaction with Shari'ah principles.

Second, to assert in the absence of any express words, that the Pronouncement has the effect of being a legal opinion that a document is valid and/or enforceable in any court of law seems very unreasonable. Shari'ah Boards comprise of religious scholars not lawyers and such a conclusion would therefore seem totally illogical.

Third, the authors understand that the executed documents were not reviewed by the Shari'ah Board. In the circumstances, it seems unreasonable to suggest that that the Shari'ah Board could be said to have opined on the validity and enforceability of the executed documents.

Fourth, following Beximco it is likely that the courts will be reluctant to determine that reference to general principles of Shari'ah law can be intended to be incorporated into a governing law of a contract.

Practical tips

Regardless of the outcome, the case serves as a reminder to Shari'ah Boards and Islamic Finance institutions to take care when issuing pronouncements and to clarify the scope of their role. The following practical tips are recommended:

Disclaimer Any pronouncement by the Shari'ah Board should be accompanied with a clear disclaimer that members of the Shari'ah Board are not lawyers and do not purport to give any legal opinion or advice in relation to the transaction by making the pronouncement.

Independent Advice The pronouncement should make it clear that all parties should obtain their own independent advice (legal and/or financial) as they deem necessary.

Non-reliance A Shari'ah Board should look to obtain written representations from all parties to confirm that they have not received any advice or legal opinion from the Shari'ah Board and/or do not purport to be relying on any advice or legal opinion from it.

Exclusion/Limitation of Liability The pronouncement should contain a properly drafted exclusion or limitation of liability clause.

Entire Agreement The pronouncement should contain an entire agreement clause to prevent parties from raising any misrepresentation claims in respect of pre-contractual statements.