Dana Gas PJSC v Dana Gas Sukuk Ltd & Ors

A contract governed by English law is generally valid and enforceable according to English law, even if the transaction or its performance would be unlawful under foreign law. The doctrine of common mistake is exceptional and applies only where the contract leaves a sufficiently fundamental matter unprovided for. It has no scope where the contract expressly or impliedly allocates the relevant risk. A payment obligation is not conditional on a later transfer where the contract separates payment from transfer and makes payment the first stage. Public policy may prevent enforcement of an obligation requiring an illegal act in the place of performance, or of a contract intended to perform an illegal act in a friendly foreign state. Those principles did not apply where payment was to be made in England and no unlawful act was required in the foreign state.

Dana Gas challenged the enforceability of an English-law Purchase Undertaking forming part of a sukuk al-mudarabah transaction. It alleged, for the purpose of the preliminary issue, that the related Mudarabah Agreement and any Sale Agreement were unlawful and unenforceable under UAE law, and that the Trustee had no transferable rights in the Mudarabah Assets.

The court considered whether, on those assumptions, the Purchase Undertaking remained valid and enforceable. The issues were whether payment of the Exercise Price depended on a valid transfer, whether the agreement was void for common mistake, and whether English public policy prevented enforcement.

1. The Purchase Undertaking was valid and enforceable. The court determined the preliminary issue on the assumption that the related UAE-law agreements were unlawful and unenforceable. A declaration was to be made accordingly, with consequential relief reserved for further submissions.
2. The obligation to pay the Exercise Price arose on delivery of a valid Exercise Notice. The agreement deliberately separated the transaction into two stages: payment first, followed by transfer through execution of a Sale Agreement. The transfer was therefore not a concurrent condition of the payment obligation. The contractual structure also allocated to Dana Gas the risk that the Mudarabah Assets could not lawfully or effectively be transferred, or that no such rights existed.
3. Common mistake is based on an objective construction of the contract, not on the parties’ subjective beliefs. It applies only where the contract was never intended to operate in the actual circumstances and the difference is sufficiently fundamental. There is no scope for the doctrine where the contract expressly or impliedly allocates the risk of the mistake.
4. The Purchase Undertaking expressly contemplated that a Transaction Document, including the Mudarabah Agreement, might be challenged or become unlawful. Such an event entitled the Trustee to enforce the Purchase Undertaking. The alleged mistake therefore concerned circumstances which triggered contractual rights rather than circumstances which avoided the contract.
5. The Ralli Brothers principle and article 9(3) of the Rome I Regulation were inapplicable because the enforceable payment obligation was to be performed by payment into a London account. The public-policy principle derived from Foster v Driscoll and applied in Regazzoni v Sethia requires an intention that an act unlawful under friendly foreign law be performed in that foreign country. No such intention was shown, and in any event invalidity of a Sale Agreement would not invalidate the separate payment obligation.
6. All grounds advanced against enforceability failed. The court also rejected the argument that contractual consequences of challenging validity were penalties or contrary to public policy.