Dana Gas PJSC v Dana Gas Sukuk Ltd & Ors [2018] EWHC 278 (Comm)

Case No FL-2017-000004[2018] EWHC 278 (Comm)IN THE HIGH COURT OF JUSTICEBUSINESS AND PROPERTY COURTS OF ENGLAND WALESCOMMERCIAL COURTFINANCIAL LIST (QBD)Venue Royal Courts of Justice, Rolls Building, Fetter Lane, London, EC4A 1NLDate 01/02/2018
Before
MR JUSTICE LEGGATT
Between
DANA GAS PJSCClaimantDANA GAS SUKUK LIMITEDDefendantsDEUTSCHE TRUSTEE COMPANY LIMITEDDefendantDEUTSCHE BANK AGDefendantCOMMERCIAL INTERNATIONAL BANK (EGYPT) SAEDefendantBLACKROCK GLOBAL ALLOCATION FUND, INC.Defendant
Richard Gillis QC, Daniel Hubbard and Maximilian Schlote (instructed by Squire Patton Boggs) for ClaimantWilliam Edwards (instructed by Fieldfisher LLP) for 1 st DefendantDavid Allison QC and Ryan Perkins (instructed by Allen & Overy) for 2 nd DefendantRobert Anderson QC, Stephen Atherton QC, Andrew Scott and Rebecca Loveridge (instructed by Weil, Gotshal & Manges (London) LLP) for 5 th DefendantHearing Hearing dates: 30 January 2018 and 1 February 2018
Judgment
[1]On 17 November 2017 I handed down judgment on a preliminary issue of law in this action. My decision was reached without having heard oral argument from counsel for the claimant, Dana Gas (although their case had been argued in written submissions). The circumstances in which this came about and other relevant background are summarised in the November judgment itself and in earlier judgments given in these proceedings. At the time when the November judgment was handed down, Dana Gas was still subject to an anti-suit injunction issued by a court in Sharjah in the United Arab Emirates, which prohibited Dana Gas and the first four defendants from proceeding with the present action. That injunction was obtained by three shareholders of Dana Gas, but in circumstances where, as I have found in a judgment given on 22 September 2017, Dana Gas did not oppose the application made by its shareholders and bore a significant degree of responsibility for the situation in which it was prohibited from taking part in the trial.[2]On 20 November 2017, three days after the November judgment was handed down, the Court of Appeal in the UAE quashed the anti-suit injunction granted by the lower court, leaving Dana Gas free to litigate the current proceedings. On 8 December 2017 Dana Gas issued an application under CPR r.39.3 for the November judgment to be set aside. That application is now before the court, together with an application in the alternative for permission to appeal.[3]CPR r.39.3(3) provides: “(a) Where a party does not attend [the trial] and the court gives judgment or makes an order against him, the party who failed to attend may apply for the judgment or order to be set aside." Pursuant to CPR r.39.3(5), where such an application is made, the court may grant the application only if three conditions are satisfied. They are that the applicant: "(a) acted promptly when he found out that the court had exercised its power to strike out or to enter judgment or make an order against him; (b) had good reason for not attending the trial; and (c) has a reasonable prospect of success at the trial."[4]The fifth defendant, BlackRock, which was joined to the proceedings after the other defendants were restrained by the Sharjah anti-suit injunction and which appeared at the hearing of the preliminary issue, opposes the application to set aside the judgment and contends that none of those three conditions is satisfied.[5]Instead of hearing argument on the question whether the three conditions set out in CPR r.39.3(5) are satisfied I have thought it convenient to follow a different course, to which none of the parties objected. I have heard oral argument from Mr Gillis QC on behalf of Dana Gas on the merits of the preliminary issue. Had I concluded that the decision reached in the November judgment was wrong, it would then have been necessary to decide whether the conditions in CPR r.39.3(5) are satisfied so that the court has power to set aside the judgment, or whether the only recourse is to give permission for an appeal.[6]As it is, despite the eloquence of Mr Gillis, I have not been persuaded that the decision or any of the conclusions reached in the November judgment was erroneous. In these circumstances I think it unnecessary to decide whether the conditions in r.39.3(5) are satisfied, since even if they were satisfied it would serve no useful purpose to set aside the judgment and then immediately reinstate it on the basis that it was correctly decided. I also consider that the arguments advanced on behalf of Dana Gas are so weak that an appeal would have no real prospect of success and I therefore refuse permission to appeal.

The preliminary issue

[7]The preliminary issue is set out in an appendix to the November judgment. Its purpose was to determine whether, if certain propositions of UAE law contended for by Dana Gas are correct, the Purchase Undertaking, which is governed by English law, is nevertheless valid and enforceable in accordance with its terms.[8]Three grounds were relied on by Dana Gas in its amended particulars of claim and in its written submissions for the trial for arguing that, on the relevant assumptions, the Purchase Undertaking, and in particular the obligation to pay a sum of money referred to in the Purchase Undertaking as the "Exercise Price", is unenforceable. Those grounds were:(1) an argument that, on the proper interpretation of the Purchase Undertaking, on the assumed facts Dana Gas has no obligation to pay the Exercise Price;(2) an argument that on the assumed facts the Purchase Undertaking is void for mistake; and(3) an argument that on the assumed facts any obligation of Dana Gas to pay the Exercise Price is unenforceable as a matter of English public policy.[9]I rejected each of those arguments for reasons given in the November judgment and therefore decided the preliminary issue in favour of the defendants.[10]On this application Mr Gillis QC, who has performed the difficult task of arguing the case for Dana Gas with great skill, renewed the construction argument, which he put at the forefront of his submissions. He accepted realistically that, if that argument is rejected, Dana Gas cannot succeed on the ground of mistake. On the third issue he advanced a narrower argument of public policy than the one previously put forward. I will deal first with the construction argument before turning more briefly to the argument of public policy.

The construction argument

[11]The argument of Dana Gas is that on the proper interpretation of the Purchase Undertaking its obligation under clause 3.2.1 to pay the Exercise Price is conditional on the parties being able to enter into a valid Sale Agreement pursuant to clause 3.3, which will have the effect of transferring the Mudarabah Assets to Dana Gas. At paragraphs 52 to 54 of the November judgment I set out shortly my reasons for the view expressed in paragraph 51 that this interpretation of the Purchase Undertaking is untenable and flatly inconsistent with the express wording.[12]On behalf of Dana Gas, Mr Gillis made the following principal points. First, he submitted that insufficient attention has been given to the commercial purpose of the Purchase Undertaking and whether the interpretation accepted in the November judgment makes commercial sense. That interpretation has the consequence that Dana Gas is obliged to pay the Exercise Price even if it gets nothing in return, either because the Trustee has no rights to the Mudarabah Assets which it can transfer to Dana Gas, or because it has rights which cannot be transferred by the execution of a Sale Agreement as envisaged in clause 3.3 because any such Sale Agreement would be invalid. Such a result, Mr Gillis argued, is wholly uncommercial and not one that the parties would reasonably be understood to have intended.[13]Second, Mr Gillis submitted that the Purchase Undertaking is reasonably to be understood as providing for a sale and purchase in specified circumstances of the Mudarabah Assets. Both in its title and throughout the operative clauses the word "purchase" is used. One party's purchase is the other party's sale and there is also a specific provision made for the execution of a "Sale Agreement" in a form set out in a schedule to the contract. Mr Gillis quoted a statement of Atkin LJ in Rowland v Divall [1923] 2 KB 500 at 506-507 that:
"There can be no sale at all of goods which the seller has no right to sell. The whole object of a sale is to transfer property from one person to another."
Mr Gillis might also have made the same point by reference to section 2 of the Sale of Goods Act 1979, which in section 2(1) defines a contract for the sale of goods as "a contract by which the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration called the price." In addition, section 2(4) states:
"Where, under a contract of sale, the property and the goods is transferred from the seller to the buyer, the contract is called a sale."
[14]Mr Gillis submitted that, although the Purchase Undertaking is not a contract for the sale of goods but is concerned with intangible assets, the words "sale" and "purchase" used in the contract connote a transfer of property. It is therefore inconsistent with its character as a purchase undertaking to interpret the contract as requiring payment of the Exercise Price irrespective of whether the Trustee is able to transfer any property to Dana Gas in return for such payment.[15]Third, Mr Gillis submitted that it is also implicit in other wording contained in the Purchase Undertaking that Dana Gas will receive valuable rights in the Mudarabah Assets in return for payment of the Exercise Price. He drew attention, in particular, to clause 2.4 by which Dana Gas declares that:
"it provides this undertaking having evaluated the nature of and anticipated return on the Mudarabah Assets and the commercial benefit it will receive in acquiring the Mudarabah Assets, or part thereof, at the relevant Exercise Price."
It is implicit in that wording, Mr Gillis argued, that Dana Gas will receive rights in the Mudarabah Assets if it pays the Exercise Price.[16]Fourth, Mr Gillis addressed the structure of clause 3 and the fact that it provides for a sequence of events involving, first, delivery of an Exercise Notice to be followed by payment of the Exercise Price, to be followed in turn by the transfer of the Trustee's rights to the Mudarabah Assets. That sequence is explained, Mr Gillis argued, by the natural desire of the Trustee to retain title to the Mudarabah Assets until it has received payment. The arrangement is no different in substance, he submitted, from one where a contract for the sale of goods contains a so-called Romalpa clause which provides for the seller to retain title to the goods after their delivery to the buyer until such time as the buyer has paid the price for the goods. It does not follow, Mr Gillis argued, that the price is payable even if it transpires that the seller has no title capable of being retained. Mr Gillis accepted that in the way the Purchase Undertaking is structured the obligation of Dana Gas to pay the Exercise Price following delivery of a valid Exercise Notice and the obligation of the Trustee to transfer its rights to the Mudarabah Assets are not concurrent conditions. But he submitted that on the proper interpretation of the contract the ability of the Trustee to transfer its rights to the Mudarabah Assets is a condition subsequent, such that if the Trustee is unable to transfer its rights to the Mudarabah Assets in accordance with clause 3.3 by executing a valid Sale Agreement, or if it has no such rights to transfer, the payment obligation is discharged.[17]Attractively as these arguments were presented by Mr Gillis, they do not and cannot in my view overcome the fundamental problem that the meaning which Dana Gas seeks to give to the Purchase Undertaking does not accord with what it says. In construing the document I start from the position that – as is common ground and as is plain, including from the front page of the document – it is a professionally drafted contract. If the intention had been to make the obligation to pay the Exercise Price conditional on the ability of the Trustee to transfer title to the Mudarabah Assets, one would expect this fundamental point to be stated clearly and expressly in the document.[18]Solicitors who draft transaction documents of this kind are very familiar with the terminology of conditions – be they concurrent conditions, conditions precedent or conditions subsequent – and they know very well how to frame a contract in a way which makes performance of one obligation conditional on performance of another, if that is the intention. In this case, there is nothing in the Purchase Undertaking which says that the obligation to pay the Exercise Price is conditional on the ability to transfer rights in the Mudarabah Assets to Dana Gas. I cannot suppose that this omission was accidental or that it was thought unnecessary to spell this out. This is not the approach taken in professionally drafted contracts like this, where matters of such potentially great importance are not left to chance or left to be inferred and the preferred drafting technique is one of belt and braces.[19]In particular, there is nothing in clause 3.2, the clause which contains the payment obligation, which says, or which can possibly be read as meaning, that Dana Gas is only obliged to pay the Exercise Price if the Trustee has rights to the Mudarabah Assets which it is able to transfer to Dana Gas. To the contrary, it is plain from the wording of the clause that the only condition which has to be fulfilled before the obligation to pay the Exercise Price will arise is the delivery of an Exercise Notice pursuant to clause 3.1.[20]Likewise, there is nothing in clause 3.3 which states, or which is capable of being read as meaning, that, if the Trustee is unable to transfer rights to the Mudarabah Assets, either because it has no such rights or because any Sale Agreement executed by the parties would be invalid, Dana Gas is entitled to bring the contract to an end. Furthermore, the obligation imposed by clause 3.3, which is an obligation on both Dana Gas and the Trustee to execute a Sale Agreement, only arises following payment of the Exercise Price. Unless and until Dana Gas pays the Exercise Price, therefore, clause 3.3 does not bite.[21]If Dana Gas were to pay the Exercise Price I cannot see that on the assumed facts, provided the Trustee was ready and willing to execute a Sale Agreement, it could be said to be in breach of clause 3.3. But even if it could be said that the inability of the Trustee to execute a valid Sale Agreement would put the Trustee in breach of the clause, and even if that breach was regarded as one which gave Dana Gas the right to terminate the contract although it would also be in breach itself, I still cannot see how the exercise of that right would assist Dana Gas. It is clear law that termination of a contract only puts an end to obligations for future performance and does not affect obligations already accrued. And ex hypothesi the obligation to pay the Exercise Price must on this scenario already have accrued.[22]As for the point made about the use in the Purchase Undertaking of the terms "sale" and "purchase", I accept that for there to be a sale or purchase properly so called there must be a transfer of title to some form of property in return for payment of a price. However, it is perfectly possible to draft a contract in which the payment obligation is not conditional on the so-called seller having title to the property described in the contract and where there is no warranty of title. Put another way, a contract can be framed so that the buyer takes the risk that the seller lacks title and has no rights to property which are capable of being transferred.[23]I think it clear that this is the intention and effect of the present contract, and that conclusion is not displaced simply by the fact that the words "purchase" and "sale" are used. Nor is it displaced by the fact that it is contemplated, for example in clause 2.4, that Dana Gas will acquire rights to the Mudarabah Assets after paying the Exercise Price. That is plainly the general expectation. But it is not possible to derive from clause 2.4 or any other clause of the agreement a stipulation that Dana Gas is relieved of the obligation to pay the Exercise Price if it turns out that the Trustee has no rights to the Mudarabah Assets or cannot transfer such rights.[24]It is also relevant to note that the purchase provided for in the Purchase Undertaking is expressly stated to be on an "as is" basis. That expression is used in clause 3.2. Clause 2.1 spells out further what this means, namely:
"without any warranty, express or implied as to condition, fitness for purpose, suitability for use or otherwise, and if any warranty is implied by law it shall be excluded to the full extent permitted by law."
It is clear that there is no warranty given or implied in the contract that the Trustee has any rights to the Mudarabah Assets which it is able or will be able to transfer. The matter goes further because, as discussed in the November judgment at paragraph 54, the Dissolution Events, which are some of the occurrences which entitle the Trustee to exercise its rights under clause 2 of the Purchase Undertaking, include the situation where the Mudarabah Agreement is invalid, such that the Trustee has no rights to the Mudarabah Assets, and a situation where any Sale Agreement would be invalid: see in particular clause 5.1.4 of the Purchase Undertaking and the Dissolution Events set out in condition 13 of the conditions appended to the Declaration of Trust. The clear implication, as I said in the November judgment, is that one of the purposes of the Purchase Undertaking is precisely to protect the Trustee against the risk that the transaction documents governed by UAE law will turn out to be invalid.[25]Mr Gillis submitted that clause 5.1.4 and clause 5.1.3 do not assist on the issue of construction, first of all because those clauses would not be redundant if the construction argument of Dana Gas is correct and secondly because they only raise the same question of construction raised by the argument of Dana Gas generally: that is, if the validity of one or more of the transaction documents means that the parties cannot complete the contractually agreed sales process so that Dana Gas does not receive the Trustee's rights, does Dana Gas nonetheless have to pay the Exercise Price? I agree that clauses 5.1.3 and 5.1.4 would not be deprived of all effect if the contract meant what Dana Gas contends it does. But in my view those clauses provide considerable assistance with the question of construction. They powerfully confirm that it was the objective intention to allocate to Dana Gas the risk of the Mudarabah Agreement and any Sale Agreement being, or even being alleged to be, invalid.[26]I have not yet directly addressed the argument made by Mr Gillis that the interpretation of the Purchase Undertaking contended for by BlackRock and accepted in the November judgment is contrary to commercial common sense because Dana Gas could not sensibly be expected to pay the Exercise Price if it will get nothing in return. That argument seems to me to ignore the commercial reality that the money raised by the issue of the certificates has been paid to Dana Gas, which has used the money for its own purposes. The evident purpose of the Purchase Undertaking is to seek to ensure that Dana Gas can be obliged, in certain events of default, to pay back the principal amount of the certificates and any unpaid distribution amounts. From the point of view at least of English law, which is the law chosen by the parties to govern the Purchase Undertaking, there is nothing unreasonable about that. Whether, even if the Mudarabah Agreement is valid, the Trustee has any title or rights to any property which the capital of the mudarabah has been used by Dana Gas to purchase seems to me wholly conjectural. I can see nothing in the Mudarabah Agreement to suggest that it does. There is no retention of title clause, for example, in the Mudarabah Agreement. But if it turns out that the Trustee has no such property rights, I cannot see why commercially this should make it irrational or nonsensical for the Trustee to have the right to require Dana Gas to pay back the amount of the capital which it has received, together with other sums which Dana Gas has failed to pay under the Mudarabah Agreement.[27]The suggestion that the Trustee might end up both receiving the Exercise Price under the Purchase Undertaking and with valuable rights to property which the capital of the mudarabah was used to purchase because the parties cannot execute a valid Sale Agreement appears to me to be fanciful. Supposing, however, that this were a real possibility, I cannot see why it would render uncommercial the interpretation of the Purchase Undertaking for which BlackRock contends. As Mr Anderson QC on behalf of BlackRock observed, the risk that the Mudarabah Agreement and any other transaction documents governed by UAE law might be held to be invalid was clearly contemplated by the parties when they entered into the transaction. The context for the issue of certificates of a kind which are sometimes referred to as Islamic bonds or sukuk includes the prohibition against riba, essentially the compensation for the use of money which is a principle of Shari'a. The transaction was structured in a way which sought to avoid infringing that principle and learned opinions were obtained from experts on Shari'a and on the law of the UAE that the transaction was compliant with that principle and with UAE law. Manifestly, however, there remained a risk that those opinions might turn out to be, or be held to be, incorrect. The question would then arise, as Dana Gas says it now does, of who bears the risk of such invalidity: should it be Dana Gas, which has had the benefit of the capital contributed by the Trustee, or should it be the Trustee and the certificateholders, who in that event get nothing back? I find it quite impossible to say that putting the risk on Dana Gas is an irrational choice or one which commercial parties could not sensibly have agreed.[28]For all those reasons, which are in substance the same as those given in the November judgment, although I have stated them at much greater length, it remains my view that the interpretation of the Purchase Undertaking for which Dana Gas has argued is untenable.

Public policy

[29]I turn then to the argument of public policy which has been made on behalf of Dana Gas. At paragraphs 46 and 79 of the November judgment I noted that as a general rule the validity and enforceability of a contract governed by English law is not affected by whether the contract would be regarded as valid or whether its performance would be lawful under the law of another country. To this general rule there are limited exceptions. One is the principle illustrated by the case of Ralli Brothers v Compania Naviera Sota Aznar [1921] KB 614 that the English courts will not enforce an obligation which requires a party to do something which is unlawful by the law of the country where the contract is to be performed. As I mentioned at paragraphs 80 to 81 of the November judgment, at the start of these proceedings Dana Gas sought to rely on the Ralli Brothers principle as a ground for arguing that the Purchase Undertaking is unenforceable. But it later abandoned that argument when it became plain that the place of performance of the obligation contained in the Purchase Undertaking to pay the Exercise Price is England and not the UAE.[30]A second exception to the general rule is the principle illustrated by the cases of Foster v Driscoll [1929] 1 KB 470 and Regazzoni v KC Sethia (1944) Ltd [1958] AC 301. Under this principle the English court will not enforce a contract which has as its object and intention the performance in a friendly foreign country of an act which is illegal under the law of that country. In its written submissions for the trial Dana Gas sought to rely on Regazzoni v Sethia and what was, in fact, an incorrect statement of this principle. In the November judgment I rejected that argument and observed that there is nothing to indicate that the Purchase Undertaking has as its object and intention the doing of anything in the UAE which is alleged by Dana Gas to be unlawful under the laws of the UAE.[31]On behalf of Dana Gas Mr Gillis QC does not dispute that conclusion and does not seek to rely on either of the principles that I have just mentioned. He relies solely on what he submits is another principle illustrated by Foster v Driscoll, namely, that where the main contract is illegal and unenforceable for any reason the English court will not enforce any ancillary or collateral contract where the purpose and policy of the rule which invalidates the main contract also invalidates the ancillary contract. In Foster v Driscoll the English court would not enforce the main contracts because those contracts had as their object and intention the importation of whisky into the United States in violation of US Prohibition laws. The English court also refused to enforce two bills of exchange which were part of the overall scheme. Mr Gillis submits that a similar principle applies where the reason for refusing to enforce the main contract is not that it has as its object the performance of acts which are illegal in a friendly foreign country, but is simply that the main contract is illegal and therefore invalid under its governing law. In his submission an English court will not enforce a second contract which is collateral to the main contract in these circumstances if the policy which renders the main contract illegal also affects the collateral contract. Mr Gillis contends that on this reasoning the Purchase Undertaking is unenforceable because it is collateral to the Mudarabah Agreement and the policy which invalidates the Mudarabah Agreement also impeaches the Purchase Undertaking.[32]This argument seems to me to involve a confusion between considerations of English public policy and English rules of the conflict of laws. The reason why an English court does not enforce a contract which is illegal and invalid under its governing law is that the relevant English rule of the conflict of laws, now contained in Article 10 of the Rome I Regulation, requires the existence and validity of a contract to be determined by the law which would govern it under the Regulation if the contract were valid. In the case of the Mudarabah Agreement this requires the question of its validity to be determined by applying the law of the UAE. But this is not a principle of English public policy. It is simply a rule of the conflict of laws. In any event neither the rule nor the reasons for it impeach the Purchase Undertaking, even if that is regarded as collateral or ancillary to the Mudarabah Agreement, because the Purchase Undertaking is governed by English law. The rule which requires the validity of a contract to be determined by applying its governing law therefore requires English law to be applied to determine whether the Purchase Undertaking is valid. There is no English public policy which the Purchase Undertaking contravenes. In particular, there is no principle of English public policy equivalent to the prohibition of riba which is said to render the Mudarabah Agreement unlawful under UAE law and it is now accepted by Dana Gas that the Ralli Brothers principle and the principle applied in Regazzoni v Sethia have no application in this case.[33]None of the authorities relied on by counsel for Dana Gas, in my view, affords Dana Gas any assistance. Reliance was placed first of all on the proposition stated in Treitel on the Law of Contract (14th ed.) paras 11-167 that:
"Collateral transactions may be infected with the illegality of the principal contract if they help a person to perform an illegal act or if they would, if valid, make possible the indirect enforcement of an illegal contract..."
However, this proposition is concerned with English law and contracts which are illegal under English law. There is no assumption made that the Mudarabah Agreement is illegal as a matter of English law and it is not suggested that its legality or otherwise under English law is relevant to its validity or enforceability.[34]In Beijing Jianlong Heavy Industry Group v Golden Ocean Group Ltd [2013] 2 All ER (Comm) 436 the question was whether, in circumstances where an English law guarantee was assumed to be unenforceable because it involved the commission in a foreign country of acts that were unlawful under that country's law, an arbitration clause in the guarantee was also unenforceable. That was a case, therefore, in which the main contract was assumed to be contrary to English public policy in accordance with the principle in Regazzoni v Sethia and the question was whether the arbitration clause was infected by the same illegality. The court held not, but in any case it was concerned with a contract illegal under English law. The same applies to the case of Harbour Assurance v Kansa [1993] QB 701.[35]Finally, in Azimut-Benetti SPA v Healey [2010] EWHC 2234 (Comm), Blair J held that a guarantor's obligation would not be enforceable in circumstances where the debtor's obligation guaranteed by the guarantor was itself an unenforceable penalty. I cannot see any relevance of that decision to the present case because the present case does not involve any question of seeking to enforce a claim for a penalty directly or indirectly.[36]I conclude that this third attempt by Dana Gas to formulate an objection to enforcement of the Purchase Undertaking based on public policy is no more successful than the previous two attempts.[37]It follows from the conclusions I have reached that the application by Dana Gas to set aside the November judgment will be dismissed and permission to appeal will be refused.