Dana Gas Declares its Own Sukuk “Unlawful”: Revisiting The Investment Dar Case

Dana Gas Declares its Own Sukuk Unlawful. Move Reminiscent of The Investment Dar Case.

June 16, 2017 I Author: Hdeel Abdelhady 

News outlets have reported that Dana Gas, the gas producer based in the Emirate of Sharjah in the UAE, this week declared that its own sukuk or Islamic “bonds” are “unlawful” under Islamic law (ostensibly the argument is that the Dana Gas sukuk are unlawful under Shari’ah as interpreted and applied in the UAE). Dana Gas indicated the same in a June 13, 2017 press release that advised, inter alia, that it had received “legal advice” that “the Sukuk in its present form is not Shari’a compliant and is therefore unlawful under UAE law.”

In the same press release, the company disclosed that it had “invited” holders of two sukuk issued by Dana Gas to form an ad hoc committee to discuss its proposal to exchange the Islamic bonds with “a new enforceable, Shari’a compliant instrument.” The June 13 press release was followed by a June 14 press release in which Dana Gas announced that it had obtained from a Sharjah court an injunction barring sukuk holders from taking action pending a determination by the court of the legality of the relevant sukuk instruments (notably, according to Dana Gas, the injunction was obtained just one day after the Sharjah court action was commenced). In a third press release dated June 15, Dana Gas separately announced that it had obtained, on June 13, an injunction from a BVI court blocking “any enforcement” against certain of” its BVI assets. (The sequence of the Sharjah and BVI injunctions is noteworthy and merits inquiry as to whether, and if so how, one of the injunctions was used to support the case for the second).

Dana Gas’ move to halt its obligations under the sukuk terms on the grounds that the instruments are unlawful under Islamic law triggers many issues for discussion, including: (1) the legal and tactical soundness of its actions, (2) implications for the sukuk market and Islamic finance generally, and (3) the real and perceived quality of Shari’ah governance (both with respect to the sukuk at issue and sukuk and Islamic finance generally).

For now, it is worth noting that this is not the first time that an Islamic instrument has been deemed unlawful by the originating party in an effort to avoid payment obligations. Years ago, an Islamic financial institution,The Investment Dar, asserted in an English court that a wakalah investment product that it offered and managed was not Shari’ah compliant and therefore unenforceable. I discussed The Investment Dar case in a 2010 article advocating for stronger governance and concerted brand protection in Islamic Finance (The Investment Dar Company KSCC v. Blom Development Bank SAL, 2009 EWHC 3545 (Ch)). (I also cover the Investment Dar case in my Transactional Islamic Law course).

The relevant portion of that 2010 article is excerpted below. One or more additional comments on the Dana Gas sukuk will follow.


The Investment Dar Case                          

The Investment Dar (“TID”) asserted its own failure to comply with Shari’ah as a defense to an apparently valid demand for payment by Blom Development Bank (“BDB”). TID’s Memorandum of Association prohibited its engagement in “any usury or non-Sharia compliant activities.” In October 2007, TID and BDB entered into a wakala agreement, pursuant to which BDB deposited USD 10 million with TID as its agent, for Shari’ah-compliant investment in TID’s “treasury pool.” The TID-BDB transaction and the form of master wakala agreement were previously approved by TID’s Shari’ah Board. TID failed in its payment obligations and BDB filed suit in English court (pursuant to English forum and governing law clauses).  After an initial hearing, BDB won summary judgment for USD 10 million, the principal amount deposited.  TID sought permission to appeal the summary judgment, arguing, inter alia, that a full trial was required to determine whether the wakala was enforceable.  According to TID, the wakala was interest-bearing, not Shari’ah-compliant, and therefore unenforceable because TID did not have the legal capacity to enter into the wakala.  Subsequently, TID’s Shari’ah Board issued a statement asserting that the transaction was Shari’ah-compliant, and advised TID to abandon its lawsuit with BDB.


*Hdeel Abdelhady is Founder and Principal of MassPoint. Her experience includes representing Islamic banks and other parties in Islamic transactions. She has published on Islamic banking and finance regulation and governance matters. Hdeel also teaches a course in Transactional Islamic Law at The George Washington University Law School in Washington, D.C.