This post looks at the recent English High Court decision in Dana Gas PJSC v Dana Gas Sukuk Ltd & Ors [2017] EWHC 2928.

Participants in the Middle East (and wider) Islamic finance markets held their breath during much of this year.  This was pending consideration by the High Court in England on some core issues around the enforceability of English governed payment obligations.  Underpinning the decision was whether:

  • non-compliance with Shari’ah principles (the principles which sit behind the structure of an Islamic financing); and
  • unenforceablity as a matter of the law of the purported place of enforcement of English law governed contractual payment obligations (in this case, the United Arab Emirates (the “UAE”)),

would (or should) have any bearing on the enforceability of such obligations, as claimed by the issuer of a sukuk (an Islamic finance bond).

There was an audible sigh of relief when the High Court upheld the sanctity of English law governed contractual obligations, irrespective of these claims.

The decision has not created any new English law precedent. However, it provides welcome clarity on the issues contemplated, for the purposes of sukuk and Islamic finance transactions generally.

For many years, Islamic finance products entered into by Middle East-based entities have commonly governed certain documents containing payment obligations by English law. This was because of the perceived greater certainty of their enforceability, in light of nervousness from creditors about local laws. It is this general principle of enforceability that the High Court upheld and, in doing so, widespread uncertainty about the enforceability of a multitude of Islamic financings in place across the Middle East market has been seemingly abated.

A different decision from the High Court could not only have had implications for creditor confidence in the Islamic finance market going forward, but also could have opened the floodgates for issuers to use the argument that their existing Islamic financings are not Shari’ah-compliant as a precursor to force creditors into financial restructurings on more advantageous terms.

It should be noted that the implications of the claims underpinning this case may still continue, as the sukuk issuer has announced that it will appeal the High Court judgment and the decision of the courts of the Emirate of Sharjah (in the UAE, the sukuk issuer’s jurisdiction of incorporation) on whether the sukuk is enforceable as a matter of UAE law (which will have separate, although related, potential ramifications), is still pending.

The full article on the case is available here.

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Photo of David Miles David Miles

David Miles has extensive experience structuring, advising on, and executing complex, high value financing transactions. He advises clients on a broad array of financing matters, including project finance, general corporate lending, leveraged and other event-driven finance, real estate finance and other structured finance…

David Miles has extensive experience structuring, advising on, and executing complex, high value financing transactions. He advises clients on a broad array of financing matters, including project finance, general corporate lending, leveraged and other event-driven finance, real estate finance and other structured finance products across a variety of sectors. His clients include lenders, borrowers, sponsors, and government entities and he advises on both conventional and Islamic financing structures.

Photo of Christoph Schulz Christoph Schulz

Christoph Schulz advises corporates and financiers on the structuring and delivery of debt finance transactions, covering high-value, complex structured finance transactions such as project finance, leveraged finance and asset based or supply chain based lending, as well as investment grade credits. Mr. Schulz…

Christoph Schulz advises corporates and financiers on the structuring and delivery of debt finance transactions, covering high-value, complex structured finance transactions such as project finance, leveraged finance and asset based or supply chain based lending, as well as investment grade credits. Mr. Schulz has particular experience in the Middle East and emerging markets.