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England and Wales High Court (Commercial Court) Decisions |
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You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Dana Gas PJSC v Dana Gas Sukuk Ltd & Ors [2017] EWHC 2928 (Comm) (17 November 2017) URL: http://www.bailii.org/ew/cases/EWHC/Comm/2017/2928.html Cite as: [2017] EWHC 2928 (Comm) |
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QUEEN'S BENCH DIVISION
COMMERCIAL COURT
FINANCIAL LIST
Strand, London, WC2A 2LL |
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B e f o r e :
____________________
DANA GAS PJSC (a company incorporated under the laws of the United Arab Emirates) and DANA GAS SUKUK LIMITED DEUTSCHE TRUSTEE COMPANY LIMITED DEUTSCHE BANK AG COMMERCIAL INTERNATIONAL BANK (EGYPT) SAE BLACKROCK GLOBAL ALLOCATION FUND, INC. |
Claimant Defendants |
____________________
Richard Handyside QC and Rebecca Loveridge (instructed by Weil, Gotshal and Manges (London) LLP) for the Fifth Defendant
The First to Fourth Defendants did not appear
Hearing dates: 25 September and 13 November 2017
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Crown Copyright ©
Mr Justice Leggatt:
Introduction
The parties
The certificates
The Mudarabah Agreement
The Purchase Undertaking
"3.2 Following delivery of an Exercise Notice pursuant to clause 3.1, the Obligor shall be obliged to purchase all or, as applicable, part of the Trustee's rights, benefits and entitlements in and to the Mudarabah Assets on an 'as is' basis at the relevant Exercise Price by:
3.2.1 paying the Exercise Price (or the part thereof which is payable in cash) into the Transaction Account "
3.3 Promptly following such payment , the transfer of all or, as applicable, part of the Trustee's rights, benefits and entitlements in and to the Mudarabah Assets shall occur by the Obligor and the Trustee executing a Sale Agreement."
"The parties are entering into this Agreement to transfer the Mudarabah Assets described herein to Dana Gas."
Clause 2.1 of the specified form of Sale Agreement states:
"Pursuant to the terms and conditions of the Purchase Undertaking and the Exercise Notice referred to in Recital A, Dana Gas buys [all] [insert percentage] of the Trustee's rights, benefits and entitlements in and to the Mudarabah Assets on an 'as is' basis at the relevant Exercise Price, which it has settled on the date of this Agreement in accordance with the Purchase Undertaking and the Agency Agreement."
Clause 5.1 states that the Sale Agreement is governed by the laws of the UAE.
Security
The complaint of Dana Gas
Background to the proceedings
"Due to the evolution and continual development of Islamic financial instruments and their interpretation, the Company has recently received legal advice that the Sukuk in its present form is not Shari'a compliant and is therefore unlawful under UAE law. As a result, a restructuring of the current Sukuk is necessary to ensure that it conforms to the relevant laws for the benefit of all stakeholders."
On 13 June 2017 Dana Gas issued proceedings in England and in the UAE, having already on 12 June 2017 issued an application for an injunction in the BVI.
The proceedings
The preliminary issue
English private international law
The case of Dana Gas
i) On a proper interpretation of the Purchase Undertaking, the obligation of Dana Gas to pay the Exercise Price is conditional on the parties being able lawfully and effectively to transfer the Trustee's rights to the Mudarabah Assets by entering into a valid Sale Agreement which they cannot do.ii) The Purchase Undertaking is void for mistake, because the parties entered into it on the basis of the mistaken common assumption and understanding that:
a) the Mudarabah Agreement is lawful and enforceable under UAE law;b) any Sale Agreement entered into in accordance with clause 3.3 of the Purchase Undertaking would be valid under UAE law; andc) the Trustee had rights, benefits and entitlements in and to the Mudarabah Assets that could be the subject matter of a Sale Agreement.iii) As a matter of English public policy, the English courts will not enforce any Sale Agreement and, in consequence, will not enforce the obligations under the Purchase Undertaking, including the obligation of Dana Gas to pay the Exercise Price.
(1) The construction argument
(2) Mistake
The relevant law
"Whenever it is to be inferred from the terms of a contract or its surrounding circumstances that the consensus has been reached upon the basis of a particular contractual assumption and that assumption is not true, the contract is avoided: i.e. it is void ab initio if the assumption is of present fact and it ceases to bind if the assumption is of future fact."
Lord Atkin went on to make it clear (at 226) that, for the purpose of this proposition, a particular assumption cannot be said to be the basis of the contract "unless the new state of facts makes the contract something different in kind from the contract in the original state of facts."
"a mistake [as to quality of the thing contracted for] will not affect assent unless it is the mistake of both parties, and is as to the existence of some quality which makes the thing without the quality essentially different from the thing as it was believed to be." [emphasis added]
Even more starkly, Lord Thankerton who reached the same conclusion as Lord Atkin said (at 237) that a common mistake would not avoid the contract unless it related to something that both the parties "must necessarily have accepted in their minds as an essential and integral element of the subject matter".
"Where a fundamental assumption upon which an agreement is founded proves to be mistaken, it is not realistic to ask whether the parties impliedly agreed that in those circumstances the contract would not be binding. The avoidance of a contract on the ground of common mistake results from a rule of law under which, if it transpires that one or both of the parties have agreed to do something which it is impossible to perform, no obligation arises out of that agreement."
He added (at para 74):
"In considering whether performance of the contract is impossible, it is necessary to identify what it is that the parties agreed would be performed. This involves looking not only at the express terms, but at any implications that may arise out of the surrounding circumstances. In some cases it will be possible to identify details of the 'contractual adventure' which go beyond the terms that are expressly spelt out, in others it will not."
Lord Phillips also said (at para 75) that "[j]ust as the doctrine of frustration only applies if the contract contains no provision that covers the situation, the same should be true of common mistake".
"Logically, before one can turn to the rules as to mistake one must first determine whether the contract itself, by express or implied condition precedent or otherwise, provides who bears the risk of the relevant mistake. It is at this hurdle that many pleas of mistake will either fail or prove to have been unnecessary."
(i) Invalidity of the Mudarabah Agreement
"5.1.3 Repudiation: either the Obligor or the Mudarib repudiates or challenges the valid, legal, binding and enforceable nature of any, or any part of a, Transaction Document to which it is a party or does or causes to be done any act or thing evidencing an intention to repudiate or challenge the valid, legal, binding and enforceable nature of any Transaction Document to which it is a party; or
5.1.4 Illegality: at any time it is or will become unlawful for either the Obligor or the Mudarib to perform or comply with any or all of its obligations under the Transaction Documents to which it is a party, or any of the obligations of either the Obligor or the Mudarib under the Transaction Documents are not, or cease to be legal, valid, binding and enforceable."
As defined in clause 1.1 of the Purchase Undertaking, the "Transaction Documents" include the Mudarabah Agreement.
"at any time it is or will become unlawful for the Trustee to perform or comply with any of its obligations under the Transaction Documents to which it is a party or any of the obligations of the Trustee under the Transaction Documents to which it is a party are not, or cease to be, legal, valid, binding and enforceable".
Accordingly, if (as Dana Gas alleges) the Mudarabah Agreement is unlawful and unenforceable and has not given rise to any valid obligations, the consequence is that there has been a Dissolution Event which entitles the Trustee to enforce the Purchase Undertaking. Indeed, even if the Mudarabah Agreement is in fact lawful, the very fact that Dana Gas has challenged its validity is itself a Dissolution Event which entitles the Trustee to exercise its rights under clause 2 of the Purchase Undertaking. Hence there can be no operative mistake as the contract expressly provides for the situation which has (or has allegedly) arisen.
(ii) Unenforceability of any Sale Agreement
(iii) No rights to the Mudarabah Assets
(3) Public policy
"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 "
Other arguments
Conclusion
"Whether on the assumptions set out in paragraph 2 below the Purchase Undertaking dated 8 May 2013 is valid and enforceable in accordance with its terms."
(a) At the time when they entered into the Purchase Undertaking, the parties thereto (i.e. the Trustee, the Delegate and Dana Gas) believed that under UAE law:
(i) the Mudarabah Agreement dated 8 May 2013 was or would when executed be lawful and enforceable; and
(ii) the Trustee had or would on execution of the Mudarabah Agreement acquire rights, benefits and entitlements in and to the Mudarabah Assets; and
(ii) a Sale Agreement in the form set out in Schedule 2 to the Purchase Undertaking could lawfully be made and, if made, would be valid and effective to transfer to Dana Gas the Trustee's rights, benefits and entitlements in and to the Mudarabah Assets.
(b) Each of these beliefs was mistaken in that under UAE law:
(i) the Mudarabah Agreement was unlawful and unenforceable and contrary to mandatory rules of public policy;
(ii) any Sale Agreement would be unlawful and unenforceable and contrary to mandatory rules of public policy under UAE law;
(iii) the Trustee did not have and could not lawfully acquire any rights, benefits and entitlements in and to the Mudarabah Assets.
Note 1 Book 2, ch 30, pp454-5. [Back] Note 2 See e.g. Chitty on Contracts (32nd Edn, 2015), para 13-029. [Back]