This week, Richard Spector, Managing Partner at litigation law firm ELS Legal, looks at reports of a recent High Court ruling which could potentially cost a Middle Eastern energy firm some $700 million (£528 million).
The UK court ruled on Friday in favour of the backers of the Islamic bond, which was due to be repaid by UAE-based energy firm Dana Gas at the end of last month.
Mr Justice Leggatt found that the terms of the English-law bonds obliging Dana Gas to repay bondholders were “valid”.
Dana Gas had argued that the bonds were no longer compliant with Islamic law, meaning it would not have to pay, and proposed that the debt should be restructured – but creditors of the bond, including American investment firm BlackRock and international finance firm Goldman Sachs, turned down the offer.
The case was heard in the UK’s High Court as the bond was written in English Law.
The Judge said: “The grounds relied on by Dana Gas are all based on allegations that part or all of the transaction is unlawful or invalid or cannot lawfully be performed as a matter of UAE law.
“The suggestion that the existence of contractual rights and obligations depends on the parties’ subjective states of mind is not consistent with the objective approach which is fundamental to the modern English law of contract.”
The case must now go through the UAE’s Sharjah Courts. The process will likely hurt the Islamic Finance market, which is already blighted with concerns surrounding the fragility of cross-border regulation. Experts have previously called for “legal standardisation” around compliance.
Mohamed Damak, the head of global Islamic finance at S&P Global, said: “Standardization of Sharia interpretation and legal documentation would help not only to smooth the process of Sukuk issuance but will give investors’ the needed clarity on what to expect in similar situations.”
About Richard Spector: Managing Partner Richard specialises in property transactions and commercial litigation. Richard has acted in a number of high-profile cases and was heavily involved in the litigation that arose from the collapse of Lehman Brothers. Richard has been involved in a number of cross-border litigation cases and recently acted successfully for the Claimants in Harlequin Property (SVG) Ltd & Anr v Wilkins Kennedy, listed in the Lawyer’s top 20 cases of 2016.
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