Journal of Islamic Business and Management

The intricacies of default in Islamic Finance: A Case Study of Dana Gas Sukuk Litigation

Najeeb Zada & Marjan Muhammad

This narrative study presents the ongoing Dana Gas Sukuk nonpayment and its consequent legal proceedings and implications. Dana Gas (the company) stirred the global Islamic finance market when in June 2017 it announced that its mudarabah based sukuk instrument is no longer Shari‘ah compliant due to changes in Shari‘ah interpretation. It claimed that this situation has made the sukuk unlawful in the UAE and therefore the company will not be fulfilling its payment obligation under the sukuk and will instead seek a restructuring of the instrument. The decision was contested by the sukuk holders, who appealed against the company in the court of United Kingdom. On the other hand, Dana Gas opted for Sharjah court to proceed with litigation. This situation is the result of the fact that the sukuk document is governed by the United Arab Emirates laws but the ’Purchase Undertaking" which was part of this contract is governed by English law. After months of litigation in these two courts, the English court decided in favor of the sukuk holders asking the company to fulfill its payment obligations as its Purchase Undertaking is enforceable. On the contrary, the Sharjah court ordered the company not to follow the orders of the UK court and instead follow the instructions of the UAE court. The Sharjah court further added that the question of whether the sukuk are Shari‘ah compliant or have ceased to be so is to be decided by the Sharjah court itself, and not by the English court. Thus, there is standstill situation due to the conflicting decisions of the two courts. In this case study, a detailed description of the legal proceedings as well as other important episodes like the attempts of an out-of-court restructuring of the sukuk, the causes of the failure of restructuring attempts, the behavior of the sukuk issuer and sukuk investors and the overall legal uncertainty in sukuk documentation and default are discussed.


Dana Gas, Default, Sukuk, Restructuring