THE sheer chutzpah of beleaguered Sharjah-based Dana Gas PJSC, the Sharjah-based private natural gas company!
Last month, it abruptly tried to impose on investors a restructuring of the payment of its two outstanding sukuk tranches totalling US$700 million (RM3 billion), both of which mature on Oct 30.
The company got an injunction in the High Court in London restraining sukuk holders and their representatives “from taking any hostile action in connection with its Sukuk Al-Mudaraba” ostensibly to protect its interests.
This follows similar injunctions in the United Arab Emirates and British Virgin Islands courts.
The High Court last Wednesday also extended the injunction to later this month on the condition that Dana Gas does not sell any assets, pay dividends or raise funds above certain limits.
It is either an act of breathtaking casuistry or dire desperation.
Last Thursday, Dana Gas re-scheduled yet another conference call with sukuk holders to discuss the matter.
It seems that the Ad-Hoc Committee set up by the sukuk holders declined the overture.
Over the last week, I have spoken to prominent syariah scholars, auditors, investment bankers and lawyers (including from Malaysia), who wish to remain anonymous for obvious reasons.
The overriding concern seems that if the High Court in London rules against Dana Gas (or in favour of the company) and the matter goes to trial (probably in September) and Dana Gas wins, it would set an appalling precedent that can undermine the integrity of sukuk as a fundraising instrument, impact negatively on the global market and question the very legal certainty of sukuk.
Given the precedent set in previous cases in the High Court in London involving Islamic finance contracts governed by English Law (which is based on Common Law) in the notorious Beximco and Symphony Gems cases, the judge famously ruled that it can only rule on matters relating to English Law and has no competency in matters pertaining to syariah.
It cannot rule whether a contract or transaction is syariah-compliant or not.
But is the outrageous claim of Dana Gas that the sukuk, which was originally issued in October 2007 and restructured in May 2013, has now been declared non-syariah-compliant, and therefore invalid, a red herring?
The reality is that the sukuk documents were issued with a disclaimer, in which the issuer cautioned potential investors that it does not guarantee compatibility with syariah and that potential investors should seek their own syariah advisory.
According to a prominent syariah advisory: “I don’t know whose interest the company is protecting.
“Sukuk holders are already accepting the possibility of non-compliance.
“It is too obvious that the company is going through financial difficulties, and they want to relieve themselves from meeting this legal obligation. They are using syariah as a pretext.”
So is Dana Gas trying to avoid a default on its sukuk?
Which law will have precedence — English law or UAE law? Do these cases undermine the raison d’etre of fiqh al-muamalat (Islamic law relating to financial transactions) in Islamic finance contracts, especially those governed by English Law?
How can syariah advisories offer documents that cannot guarantee syariah compliance?
Is it time to seek a procedural accommodation between the
two legal conventions — not in substance or form — but in the way they interact?
Both conventions enjoy freedom to contract. English law would still be the governing
law of the substantive transaction.
Local laws could govern the legalities pertaining to assets in a particular jurisdiction as is usual.
Issuers would be required to guarantee the syariah validity of a sukuk and not outsource it
to individual investors and
their syariah advisers.
Can one imagine the California Pension Fund, an occasional investor in global sukuk, going down this route?
For this to happen, however, the High Court (and English
law) would have to be satisfied that the sukuk is syariah-compliant.
The only way this can be done, say syariah advisories, is for the introduction of “a world sukuk standard supported by local laws” — an Apex Sukuk Standard, which would give legal and syariah certainty.
Any dispute could either be subject to arbitration or recourse to law.
The High Court would not rule whether a sukuk contract is syariah-compliant per se, but it would rule whether it satisfied the provisions of the Apex Sukuk Standard as per contract.
In the same vein, if a product is branded and marketed as a sukuk, then by its very legal structure and ethos must be syariah-compliant.
None of this nonsense of outsourcing the function to investors and their syariah advisories.
This will take a huge shift in mindset, political will and cooperation between relevant parties and countries.
Dana Gas shareholders beware.
A syariah court judgment in Saudi Arabia set an ingenious precedent four decades ago.
A businessman borrowed from a local bank on an interest basis. When the time came for payment, he claimed he was not aware that the loan is haram (forbidden) and asked the court to declare the contract null and void and that he is obliged to pay back the principal only.
The reason he claimed is that he is keen to avoid haram transactions.
The wily judge retorted: “You need only to pay the principal to the bank so as to satisfy your desire to avoid haram.
“However, I will still charge you the interest, which I will pay to charity. I can’t allow you to enter into contracts and use syariah to relieve yourself from contract obligations.”
Perhaps the judge in Sharjah should take the same approach.
If the court fails to see the true motive of a litigant, it will weaken those scholars who are more “enlightened” in their interpretation.
There simply is no syariah basis for the court to declare this an invalid contract.
This saga is far from over.
Mushtak Parker is an independentLondon-based economist and writer. He can be reached via firstname.lastname@example.org