LONDON - A London High Court trial on the validity of a $700 million sukuk issued by the UAE's Dana Gas will go ahead on Monday despite a UAE court injunction preventing the gas company and some of its creditors from taking part.
Dana Gas said in June that it would not redeem its outstanding sukuk, or Islamic bonds, on the grounds that due to changes in interpretation of Islamic finance they're no longer sharia-compliant and therefore unlawful in the UAE.
It started proceedings in British and UAE courts because while the purchase undertaking, part of the bond contract, is regulated by English law, the mudarabah agreement underlying the sukuk structure is regulated by UAE law.
The case has attracted the attention of the $2 trillion global Islamic finance industry because it could set a precedent for sukuk issuers to refuse to redeem their paper based on changes in the religious permissibility of the debt instrument.
The British trial started on Tuesday but a last-minute anti-suit injunction obtained by some Dana Gas shareholders from the Sharjah court in the UAE prevented Dana Gas and the legal representatives of some of its creditors from participating.
After several delays this week, British Judge George Leggatt ruled on Friday that the trial would continue next week, allowing BlackRock, which has some exposure to Dana Gas' Islamic bonds, to present its case to the court on the enforceability of the purchase undertaking.
He said the case would then adjourn until October 12 to see if the UAE court in Sharjah kept the injunction in place.
The judge said Dana Gas bears a degree of responsibility for its inability to take part in the British proceedings. The company did not oppose the anti-suit injunction sought by Dana Gas shareholders in Sharjah when the shareholders filed their application, merely lodging a written memorandum about it.
The judge acknowledged however that Dana Gas had appealed to the Sharjah court this week to have the injunction amended.
Leggatt said there was no guarantee when a ruling on Dana Gas' appeal against the anti-suit injunction would be made and whether the appeal would be successful.
However, if the UAE court maintained the injunction, the judge said he could go straight to a ruling in the case without the participation of Dana Gas, basing his ruling on written submissions.
This would be a last resort, said Leggatt, adding however that fairness for the defendants also needed to be considered.
(Reporting by Alexander Winning, writing by Davide Barbuscia; editing by Jason Neely and Adrian Croft) ((Davide.Barbuscia@thomsonreuters.com;))