Limits of Legal Certainty: A Commentary on the “Dana Gas” Case

Abstract

The “Dana Gas” case is considered one of the pivotal cases in the development of the Islamic financial industry. The case raised concerns about the limits of legal certainty, particularly the judiciary’s right to exercise “ijtihad” (juristic interpretation). This study highlights the extent to which Islamic financial institutions adhere to their contractual obligations in good faith based on Shariah compliance. It also outlines how the judiciary preserves its inherent right to exercise due diligence in relation to protecting the public economic order and applying its authority in evaluating the practical application of Islamic finance contracts and instruments. Based on the dialectical approach, this article analyzes the case by presenting the background of the dispute and its legal dimensions, emphasizing the necessity of achieving legal certainty in the Islamic financial industry. This study also advocates for applying judicial jurisprudence in resolving disputes related to sukuk. Finally, it unfolds the legal lessons learned from this case. This study concludes that more effort should be made to localize judicial jurisdiction in resolving disputes related to sukuk, regulating the process of selecting the applicable law, and to develop the legal infrastructure in systems participating in Islamic finance. Accordingly, this study highlights the significant role that Shariah standards could play in this field in the future.

1. Introduction

Specialized judicial systems and appropriate legal rules for resolving disputes constitute a pivotal mechanism in the development and stability of the Islamic finance sector. Granting judicial competence (by law or agreement) to national courts in Muslim countries to adjudicate Islamic finance disputes—in addition to having official binding laws that are compliant with Shariah principles and aligned with the requirements of Islamic financial contracts—would help mitigate the legal risks faced by Islamic financial institutions. Furthermore, this would facilitate the appropriate interpretation and legal adaptation of Islamic financial contracts.

In this regard, the “Dana Gas” case is considered one of the most significant cases, raising numerous questions and debates. The courts in the United Arab Emirates (UAE) upheld their judicial competence by examining the dispute based on the Mudarabah Agreement, while the English courts relied on the “dépeçage theory” to accept their jurisdiction and apply English law.

Although the case ended in an amicable settlement, it became a turning point in the Islamic financial industry. It raised doubts about the position of Islamic financial institutions (especially since this was not the first case in this field) regarding the principles of party autonomy, the fulfillment of contractual obligations in good faith, and transaction stability, all of which can achieve a minimum level of legal certainty. However, it posed a stumbling block for judicial work in evaluating the practical implementation of Islamic finance contracts and instruments. Accordingly, the “Dana Gas” case raised the issue of balancing legal certainty in the Islamic financial market with the institutionalization of judicial work, enabling judges to establish “ijtihad” (juristic interpretation) and fulfill their role in contract modification while preserving the economic public order.

This study highlights the correlation between resolving disputes and achieving stability in the Islamic finance industry. Statistics indicate that sukuk assets are around USD 900 billion, representing nearly half of the Islamic financial assets worldwide, with a growth rate exceeding 10% (Al Natoor and Shawqi 2025). Nevertheless, there is a significant lack of effective dispute resolution solutions that may arise from providing Islamic financial products and services, including issuing sukuk and their related contractual arrangements.

Most studies on resolving Islamic finance disputes prefer arbitration over litigation (Bälz 2004), considering it the ideal alternative dispute resolution (Hasan and Asutay 2011). However, practical experience has proven that this solution is not as effective as hoped, as evidenced by the rejection of Shariah principles and the subjection of contracts to English law (Petroleum Development Ltd. v. Sheikh of Abu Dhabi 1951; Alsaidi 2004). Similarly, some arbitration decisions have been dismissed on the grounds of violating equality principles and discrimination based on religion1 (Berrahlia 2023). In fact, the essence of the problem is not solely about jurisprudence or establishing specialized bodies for resolving Islamic finance disputes (White 2012); it is primarily related to the applicable law governing the contractual relationship and the overall suitability of the legal system to enable the application of Shariah rules.

As a paradigm, the “Dana Gas” case has long been the subject of contentious debate and analysis in specialized studies (Hekmatyar and Parkar 2018), which primarily have focused on investigating the true reasons for the restructuring of the sukuk and whether these justifications were valid. Other studies have stressed its impact on legal certainty in Islamic finance contracts (Ercanbrack 2019). Some scholars have argued that the principle of contract enforcement under Islamic law would not permit Dana Gas to review its obligations or violate the rights of others in this case (Zada and Muhammad 2018). Others have attributed the sukuk’s failure in this case to a lack of transparency in the Islamic financial market and conflicting Shariah opinions regarding defaults on such financial instruments (Busari et al. 2019; Ali et al. 2022).

2. Methods

This study primarily focuses on the necessity of achieving legal certainty in issuing sukuk; however, it also argues that there is room for establishing “ijtihad” to evaluate the practices of institutions active in this field. This means respecting the inherent right of the judiciary to interpret legal texts and the will of parties in a way that ensures contractual balance and maintains the economic public order.

This research seeks to highlight a legal dilemma that often arises in the field of Islamic finance before national and international courts. This dilemma pertains to structuring financial contracts by imitating conventional financial instruments at the time of conclusion and then pleading the non-compliance of these instruments with Shariah principles during the implementation of contracts or proceedings.

Accordingly, this study aims to reveal the difference between contractual amendment as a means to evade the fulfillment of obligations and judicial intervention to maintain the economic public order. We also aim to highlight the judge’s role in overseeing contracts and ensuring their transition from merely simulated contracts to religiously legitimate ones. This constitutes the basis, authenticity, and main pillar of these contracts, attracting consumers and investors, and determines what deems the judge a lawmaking contributor.

This research also aimed to shed light on the resolution of sukuk disputes, unfolding an implicit aspect of selectivity among English courts in dealing with Islamic finance contracts. While contractual parties in the Islamic financial sector have the right to enjoy legal certainty in fulfilling their obligations, judges also have the right to exercise their authority, especially when this is based on local legal texts within the framework of respecting and enforcing international obligations.

Finally, this study advocates for a significant development that must be considered in regulating Islamic finance through Shariah standards, especially considering their partial and total adoption by various financial authorities and their implications for Islamic finance disputes in the future. We also call for efforts to address gaps in this field to quickly implement Islamic finance contracts that simultaneously meet market demands and comply with Shariah principles.

This research adopts an analytical approach to present the case and its legal outcomes. In addition, it balances the necessity of legal certainty in the sukuk sector with the development of judicial “ijtihad” through a dialectical approach. This will address criticisms directed toward Islamic finance from a singular perspective without considering the other consequences of bringing these disputes before foreign courts. Accordingly, this research provides the background of the dispute and its legal dimensions, followed by the necessity of achieving legal certainty in the Islamic finance industry. It also discusses the judiciary’s role in jurisprudence when resolving sukuk disputes and presents the legal lessons learned from this case.

3. Findings

This research demonstrates the necessity of intensifying efforts to localize judicial jurisdiction in resolving disputes related to sukuk and regulating the process of choosing applicable law. It also shows the necessity of developing a legal infrastructure in systems receiving Islamic finance. Indeed, granting judicial competence to foreign judicial bodies in international Islamic finance contracts (including sukuk) poses a significant obstacle to the development of the Islamic finance industry. This could reinforce a pragmatic approach to attracting investors, even at the expense of the necessary transparency and disclosure in this emerging financial sector.

Reinforcing the principle of party autonomy and contractual freedom in choosing applicable law in international commercial contracts may be the first step in creating a legal and judicial framework aligned with the requirements of the Islamic financial system. In this regard, this research highlights the practical errors in loosely referring to Shariah principles. It also emphasizes that regulating the selection of applicable law in contracts or agreements related to sukuk disputes can strengthen the resolution of potential future disputes. To achieve these requirements, third parties must be established, enhancing the legal infrastructure of countries receiving Islamic finance, as this infrastructure is the primary reference for judges dealing with this type of dispute. This can only be achieved by applying Shariah standards within these legal systems.

4. Background of the Dispute and Its Legal Dimensions

4.1. Facts and Origins of the Dispute

Dana Gas is the first and largest private company specializing in the exploration, processing, and transportation of natural gas in the Middle East, Egypt, and Iraq. It was established in December 2005 and is listed on the Abu Dhabi Stock Exchange2. The company has issued Mudarabah sukuk related to its activities since 2006. In 2012, these sukuk were restructured, which imposed obligations on the company to provide sukuk holders with periodic returns related to its regular tranche, valued at USD 350 million with a return of 9%, in addition to issuing a convertible tranche valued at USD 350 million with a return of 7%. However, on 13 June 2017, Dana Gas asked its sukuk holders to form a special committee to restructure sukuk that were due in October 2017. This was due to its inability to collect some of its debts, estimated at USD 900 million, in addition to expected compensation claims against the Iranian National Oil Company. To address this issue, the company received legal advice stating that the sukuk, in their current form, were not compliant with Shariah law and violated the laws of the UAE. Consequently, the company sought to replace the old sukuk with new, enforceable instruments that complied with Shariah principles.

The company filed a case before the competent courts in the UAE seeking a ruling of non-compliance regarding the Mudarabah sukuk, the object of the dispute, while also opening the door for dialog to reach an amicable solution with the sukuk holders. In its justifications (through phone calls with the sukuk holders), the company attributed the illegitimacy of its sukuk to the inclusion of terms that were not compliant with Shariah law:

• Sukuk Al-Mudarabah guaranteed a fixed rate of return to sukuk holders.
• The society was liable for any loss of capital.
• The absence of a mechanism for settling profits paid to sukuk holders at the end of the term.
• The absence of a mechanism for settling losses resulting from a decrease in the value of the Mudarabah assets.
• The company was obligated, under a purchase commitment, to buy back the sukuk at the end of the specified term.

The new instrument proposed by the company to resolve the situation included the following:

• Offering profit distributions that reflect market conditions.
• One portion of the distributions was in cash and the other in kind.
• The maturity period would not exceed 4 years.
• The company would be granted the right to settle full or partial payments at the issuance price before the maturity date without any penalties.
• The new instrument would not be convertible into shares.
• A confirmation that the profit distributions scheduled for July 2017 and October 2017 would be postponed to take the form of future distributions3.

4.2. Dispute Procedures

After a series of negotiations and precautionary provisional measures before the Sharjah Court and the London Court between the parties—Dana Gas (the plaintiff), the sukuk holders’ association, the trustee, the collateral agent, and the main collateral agent (the first, second, third, and fourth defendants), along with BlackRock as an intervenor—from 27 July 2017 to 12 October 2017, the Sharjah Court issued rulings preventing Dana Gas from proceeding with the lawsuit filed before the English court until the Sharjah Court resolved the issues related to the Mudarabah agreement governed by UAE law. Meanwhile, the High Court of England issued a judgment in absentia against Dana Gas on 17 November 2017, declaring that the purchase agreement stated in the prospectus is legal, valid, and enforceable under English law.

After the Sharjah Court of Appeal issued a ruling lifting the interim injunction on 2 December 2017, allowing the company to participate in the proceedings before the English court, the English judge rejected the arguments and requests of Dana Gas. On 1 February 2018, the judge ruled the following:

• The English court had the judicial competence to adjudicate on the matter of the buyback as stated in the parties’ agreement.
• Dana Gas’s request to direct the parties to the Sharjah Court to resolve the issues related to the Mudarabah contract was rejected.
• The trustee was allowed to claim the exercise price starting on 29 March 2018, and, if received, the judge would prohibit the payment of the amount to the sukuk holders.
• A final order was issued prohibiting Dana Gas from proceeding with the lawsuits filed before the Sharjah Court and the British Virgin Islands, permanently dismissing the orders issued by them.
• Dana Gas was obligated to pay reimbursements estimated at USD 800,000, in addition to other expenses4.

On 8 March 2018, an order was issued by the Sharjah First Instance Court (under case number 1728/2018) prohibiting the company from waiving the lawsuits filed before the UAE courts and suspending the enforcement of the rulings issued by the English court (dated 1 February 2018) until resolution of the cases before the UAE judiciary. In the meantime, Dana Gas filed an appeal before the English Court of Appeal, which was rejected by a decision dated 20 March 2018. The company was also prohibited from liquidating the Mudarabah assets unless the amounts resulting from the liquidation were equal to or greater than the amount required to be paid. The company was also forbidden from distributing profits and fees or making other payments without the court’s permission5.

4.3. The End of the Dispute and Its Outcomes

On 1 June 2018, the company’s General Assembly was held (after receiving the initial payments of its overdue debts), and a settlement agreement was established between the sukuk holders and the shareholders to restructure the Mudarabah sukuk, putting an end to all legal proceedings in all jurisdictions. The size of the new issuance was USD 530 million, with a profit rate of 4% for a duration of three years, maturing in October 2020. The company also repaid a portion of the old sukuk’s principal and due profits6.

The legal issues of this case can be summarized as follows: conflicting judicial competence in international Islamic finance contracts; the applicable law and the concept of contract dépeçage; and the role of the judiciary in amending contracts and overseeing their compliance with Shariah law and national legal texts. In other words, does subjecting a part of a contract’s terms to English law grant exclusive judicial competence to English courts, thereby excluding UAE courts? What approach does the latter take in dealing with sukuk disputes? What is the scope of applying the theory of “dépeçage” (contract fragmentation) in international Islamic finance contracts? Does reliance on legal certainty hinder the judicial intervention in amending these contracts? What effect does the absence of codification and differing fatwas in the Islamic finance industry have on undermining legitimate trust between contracting parties? Is referring to international Shariah standards to resolve Islamic finance disputes an efficient method? We will attempt to answer these questions in the following sections.

5. The Necessity of Achieving Legal Certainty in the Islamic Finance Industry

5.1. Legal Certainty: A Fixed Necessity with an Unstable Concept

The Dana Gas case raised questions about the impact of legal certainty on the legal framework of Islamic finance. Although it has appeared in many ancient legal writings (Radbruch 1936; Ripert 1949), in its contemporary meaning, legal certainty is considered a modern, flexible, broad, and unregulated concept that transcends the boundaries of a single law (Soulas de Russel and Raimbault 2003). It encompasses a range of concepts; that is, it is a multidisciplinary concept (Hardy 2019). It has shifted from a philosophical study of law, where legal certainty was viewed as “a value or goal of the law”, to “a legal standard or principle” (Nadeau 2010).

The emergence of legal certainty in judicial bodies is clearly reflected in the decision of the European Court of Justice issued on 22 March 19617. The term was also used in 10% of the subsequent decisions issued by the court (Puissochet and Legal 2001). The German Federal Constitutional Court recognized it as a constitutional principle on 19 December 1961 (Calmes 2008), while the French Council of State acknowledged it in its famous decision concerning KPMG LLP on 24 March 20068 (Valembois 2003).

Legal certainty is linked to the concept of the rule of law, which implies that citizens—without significant effort—should be able to identify what is prohibited and what is permitted according to the law. To achieve this goal, these legal rules must be clear, understandable, and not subject to frequent changes in short periods or in unexpected ways (Cassin 2006). Legal certainty encompasses several legal principles and standards that must be respected when drafting and formulating legal texts, including the non-retroactivity of laws; the clarity and quality of legal rules and their predictability; respect for acquired rights; and stability in contractual relationships.

Accordingly, the classical elements of legal certainty can be summarized as follows:

• The ability to be aware of a legal rule and easy access to it.
• Legislative stability, respect for acquired rights, and the non-retroactivity of legal texts.
• The expectation of trust or legitimate trust between the authority issuing the text and those subject to it; this is achieved by following a clear legislative policy that allows for future considerations based on present evidence and proof.

However, this does not mean that legal texts should remain stagnant, acting as obstacles to legal development and the evolution of jurisprudence over time. These elements have been renewed due to the internationalization of law and the globalization of the liberal approach (allowing the market to self-regulate based on the ideas of contract and negotiation). Moreover, there are inherent contradictions within this principle: uncertainty is an intrinsic part of the legal system; the spread of social and human relationships makes access to legislation a fundamental yet simultaneously impossible prerequisite; and legislative review is unforeseeable, that is, how can one foresee what cannot be foreseen? Additionally, objective uncertainty (knowledge and access to a text) leads to personal uncertainty (respect for legitimate trust), and the annulment of a text that violates legal certainty is, in itself, a form of legal uncertainty (Hardy 2019).

This has prompted a reconsideration of the concept, resulting in legal certainty being established based on two essential elements: flexible access to legal texts and courts and the ability to expect outcomes based on current legal data and overall legislative policy (Valembois 2003).

Legal certainty constitutes a middle-ground concept that implies access to legal rules through their publication, along with the ability to understand these texts according to the hierarchy of legal rules. At the same time, it seeks to achieve reasonable temporal stability for the application of these legal rules. If an authority wishes to issue new legal norms, it must allow those affected to take measures to assess potential risks. However, while legal certainty aims to maintain the stability of contractual relationships, it is constrained by the public interest. The individualistic perspective of the liberal system should not overshadow the broader interests of the state and societal interests that require protection (Valembois 2003).

Therefore, according to this perspective, legal certainty is an effective tool for improving the business environment and attracting investment, as it provides investors with a guarantee that their rights will be respected and not infringed upon by the competent authority. Additionally, it allows them to defend their rights before the judiciary in a fair manner and at a low cost (Deffains and Kessedjian 2015). However, this mechanism must operate under the umbrella of the public good and consider the foundations of the state and society, including public order rules and the general interest.

5.2. Legal Certainty in the “Dana Gas” Case

The terms of the Dana Gas sukuk prospectus stated that, in the event of any dispute between the parties, it would be resolved according to the rules of the London Court of International Arbitration. This clause is sufficient to grant judicial competence to the London Court, as it is established in international commercial arbitration that judicial competence is determined by the explicit or implicit will of the contracting parties, such as specifying a particular court to resolve the dispute. However, could the courts of the UAE have had judicial competence over the dispute under UAE law? What would be the applicable law in this case?

If we refer to the provisions of UAE law, we find that Article 19, Paragraph 1 states that parties have the freedom to choose the law governing international contracts without differentiating between explicit or implicit will in this regard. The general rule under UAE law (except for contracts related to real estate) is the application of the parties’ will. If there is no agreement, the law of the common domicile of the contracting parties is applied in cases of shared domicile; otherwise, the law of the country where the contract was concluded is applied. The will of the parties may be explicit or inferred from circumstances, such as the selection of a specific court. Accordingly, under the laws of the UAE, the courts enjoy judicial competence to hear the dispute, particularly regarding the validity of the Mudarabah contract.

As for the applicable law in the Dana Gas case, the sukuk issuance agreement included two main conditions for determining the law applicable in the event of a dispute between stakeholders:

• The Mudarabah contract and the donation agreements were subject to the law of the UAE.
• The purchase commitment, trust declaration, sales commitment, and collateral agreements were subject to English law (Hekmatyar and Parkar 2018).

These conditions are valid in many comparative legal systems, as well as under the Rome Regulation of 2008 (known as Rome I) (593/2008, 2008) and the Hague Principles of 2015 (HCCH 2015). In conflict of laws theory, this situation is referred to as “dépeçage” or “contract fragmentation”, which involves applying two different laws to different parts of the same contract, such that each part is governed by a specific law that differs from the law applicable to the other part. However, according to the principle of autonomy of the will and contractual freedom in international contracts, the established practice in this area is that this should not grant exclusive competence to one court over another.

As such, according to comparative legal rules, both the UAE courts and the English courts had judicial competence to hear the Dana Gas case. As for the applicable law, the Mudarabah sukuk were governed by UAE law, while the purchase undertakings were governed by English law.

The Dana Gas case also raised two important issues that have manifested in many Islamic finance disputes:

• The parties’ agreement to file their disputes with the English courts and to refer to English law as the applicable law under a contractual clause. In an empirical study conducted in 2015, Omar Oseni noted that sukuk issuance prospectuses at the global level must include a clause that selects English law in an exclusive way or in conjunction with another law (Oseni and Hassan 2015).
• Islamic financial institutions’ claims of non-compliance of their contracts with Shariah law, often as a means to evade their contractual obligations (to hide financial difficulties). This issue is frequently associated with these institutions facing financial distress and ethical or Shariah risks. This refers to the ultimate goal of attracting investors to subscribe to these Shariah and ethical instruments with regard to public trust and the stability of the Islamic finance industry.

Notably, the structure of sukuk has received considerable criticism despite its theoretical authenticity. Practical experience has made it closer to bonds than to shares. Referring to the case under study, we find that the Dana Gas sukuk were structured based on the traditional forms of Mudarabah sukuk, which include: guaranteed returns, imposing the responsibility of guarantees on the mudarib; uncertainty (gharar) and a lack of clearly defined Shariah-compliant mechanisms; and an obligation for the issuer to repurchase upon redemption of the sukuk.

According to AAOIF Shariah Standard No. 13, for the validity of a Mudarabah contract, the mudarib is obligated to guarantee only in cases of misconduct, negligence, or violation of the terms of the contract. Additionally, profits must be distributed as an undivided share (percentage) rather than a fixed amount or a percentage of the capital. If one of the parties stipulates to receive a fixed amount, the Mudarabah is invalid, and there can be no profit until the capital is secured (AAOIFI 2017, pp. 369–89).

AAOIFI Shariah Standard No. 17 also states that the prospectus must not include any clause whereby the issuer guarantees the nominal value of the sukuk to its holder, except in cases of misconduct or negligence, nor should it guarantee any amount of profit. However, a third independent party may provide a guarantee, and the sukuk issuer is not allowed to promise to repurchase the sukuk at its nominal value (AAOIFI 2017, pp. 467–88).

The company’s attempt to present alternative proposals compliant with Shariah law was not accepted by the sukuk holders, although the company insisted that this was not due to a default in payments but rather a desire for a solution that would make the sukuk compliant with Shariah principles. This issue could have been avoided by properly preparing to restructure the sukuk by redeeming the existing sukuk and issuing new ones based on updated sukuk structures (such as an amended Mudarabah or Ijarah model) or at least negotiating with the sukuk holders for a transitional phase in which new structures beneficial to all parties could be agreed upon.

However, it should be noted that the Dana Gas case did not result from official amendments to legal texts; rather, it is the result of wrong legal choices. It is well known that sukuk issuances, since their emergence, have attempted to be authentic, yet practical experience has brought them closer to traditional bonds. This is clearly reflected in Sheikh Muhammad Taqi Usmani’s statement in 2007, in which he noted that 85% of the sukuk issued by Islamic financial institutions were not compliant with Shariah law. As a result, financial institutions shifted toward issuing Ijarah sukuk instead of Mudarabah sukuk.

Remarkably, the sukuk issuers in this case did not rely on amended legal texts but rather on established Shariah rulings or fatwas (both before and after the restructuring process). The lack of codification of the Shariah rulings specific to this type of financial product has made reliance on fatwas as a regulatory source akin to an unexpected and sudden legal amendment. This directly undermines the principle of “the contract is the binding law between the contracting parties” or “Muslims are bound by their conditions”.

In this regard, it is important to distinguish between legal references and contractual references. In the realm of international commercial contracts, references from a legislator can serve as a form of indirect regulation, but this can also come from the contracting parties. This was the case in the present situation, where the company was compelled to restructure its sukuk based on texts (fatwas) stating that they were not compliant with Shariah law.

Whether the amendment to the contract terms occurs through legal texts or one of the parties, it must respect the legitimate trust between the contracting parties and the legal texts, thereby achieving a degree of legal certainty. This should agree with the principle of good faith in contractual relations (M’baye 2019), especially since the contemporary Islamic finance industry represents an emerging legal system. Thus, this requires more flexibility and simplification (in terms of structures and product subjects) than the traditional financial system.

However, it is important to distinguish among legal certainty, legitimate trust, and good faith in contracting and the state’s right (embodied in the judicial authority) to exercise its competence as a regulator and amender of contracts and interpreter of legal texts. This protects the public economic order and interest.

Thus, the absence of organized legal texts governing sukuk in a manner that aligns with Shariah law within UAE law represents a legal gap that Dana Gas could not rely on to impose the logic of legal legitimacy for its new sukuk. It was also seen as an avenue for certain English legal principles in support of the English court’s decision (Ercanbrack 2019). The Dana Gas case had global repercussions regarding the functioning of Islamic finance sukuk and the lack of legal certainty surrounding these products. Additionally, this case raised questions about the position of the courts of the UAE and the assessment of judicial security within this system.

6. Applying Jurisprudence in Resolving Sukuk Disputes

6.1. The Importance of Achieving Judicial Security

It is obvious that a judge’s right to establish “ijtihad” is guaranteed by texts and traditions, and it is fundamentally linked to the independence of the judiciary. However, this raises the question of the judge’s role as a lawmaker and a complement to the legislator. This leads us to consider the extent to which judicial precedents are regarded as a source of law, particularly in common law, civil law, and hybrid jurisdictions.

If some civil law systems prohibit judges from exercising legislative powers to uphold the principle of separation of powers, the judge’s role in interpreting and applying legal texts is essentially a form of indirect legislation. A judge acts as a safeguard in addressing legal gaps or legislative voids; otherwise, this would be seen as a denial of justice. However, there have been recent trends (even within this system) that regard judicial precedents as a source of law, whether in relation to the Court of Cassation or the European Court of Human Rights (Tascher 2011). However, the relative impact of judicial decisions on the disputing parties may mitigate the intensity of this trend, as the effects of a judicial decision are limited to the parties involved in the dispute. In Anglo-Saxon legal systems, the judge plays the dual role of adjudicator in disputes and legislator through the principle of judicial precedents, known as “Stare Decisis” (Black 1886; Gudzenko 2019).

In Muslim countries (especially in the Gulf States and North Africa), the system mediates between these two systems, creating a hybrid framework. This system combines the separation of powers with the role of the judge as an implementer of legislative and regulatory texts. At the same time, it grants judges the capacity to interpret these texts and address legal gaps while also recognizing judiciary work as a source of law.

The judiciary plays a pivotal role in attracting foreign investors, as it constitutes one of the pillars of the business environment that countries seek to improve in the global ranking9. Consequently, the London Court is a global leader in attracting international commercial disputes. This is not only due to the qualifications and international reputation of its judges, the compatibility of English law with international trade rules, and the concentration of capital in this region, but also its preservation of judicial security in its rulings. This is also due to the dominance of Anglo-Saxon law firms in the international commercial arena, which typically leads them to draft standard contracts and refer disputes to courts within the same legal family, thereby serving the interests of their clients in the event of future disputes.

In this context, judicial security is founded on establishing legitimate trust between litigants, on the one hand, and, on the other, between contracting parties and the judicial system. Judicial security encompasses two concepts (Bejjaq 2019): a broad concept that embodies trust in the judiciary as it performs its function of adjudicating cases through efficiency, quality of performance, and accessibility and a narrow concept related to the role of appellate courts in unifying judicial interpretations and ensuring the proper application of the law.

As legal security allows for the amendment of contractual provisions for the public interest and the necessities of economic public order, the role of the judge in achieving this goal cannot be overlooked, in contrast to the principle of autonomy of the will. Since legal security is linked to judicial security, restoring trust in a judicial institution when interpreting and applying the law is also one of the pillars of the rule of law, fostering confidence in the effectiveness of legal texts and the stability of transactions and contracts (Ghemidja 2009).

However, achieving judicial security does not mean that judicial interpretation cannot change; not every amendment in jurisprudence is detrimental to the public interest or constitutes a lack of judicial security. This would contradict the judge’s right to exercise discretion and interpret texts in accordance with emerging requirements.

On the other hand, the concept of expectation in judicial decisions is less demanding than adopting legal texts. Predicting legal texts is easier considering the stages and procedures involved in the enactment of legislation. By contrast, predicting disputes is almost impossible, especially when we recognize that the outcomes can change based on the details of the case and the evidence presented. Additionally, a judge’s discretionary power may vary according to their academic and personal capabilities, leading to differences in the substance of decisions issued by judicial bodies.

6.2. Applying the Concept of Judicial Security to the “Dana Gas” Case

If we apply the aforementioned concepts of judicial security to the Dana Gas case, we can note that the decisions of the Sharjah Courts aimed to implement the provisions of civil law and the rules of Shariah (Article 3 of the UAE Civil Transactions Law) in the context of Mudarabah contracts, specifically ruling on the invalidity of the guarantee clause. This is evident from the text of Article 696 of the same law, which states “[t]he mudarib may not be required to guarantee the capital if it is lost or damaged without any fault on his part”.

Furthermore, Article 704 stipulates “[t]he capital provider alone bears the loss, and any condition contrary to this is void”. It also states “[i]f any of the Mudarabah assets is damaged, it is accounted for as part of the profit; if it exceeds, it is deducted from the remaining capital, and the mudarib is not liable for it”.

This raises two questions: Could the perspective of the Sharjah courts represent a regression in the public policy direction for regulating sukuk in the UAE? And do the rulings that were expected to be issued affect judicial security in the UAE?

In response to the first question, and referring to the legal provisions specific to sukuk, the texts of the Civil Transactions Law are clear in distributing obligations and rights among the parties to a Mudarabah contract. This was confirmed after the Central Bank of the UAE adopted the Shariah standards of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) starting on 1 September 2018. This means that banks operating in the UAE are obligated to comply with AAOIFI standards, including those related to sukuk issuances, which, in turn, align with the provisions of the Civil Transactions Law.

Therefore, the public policies in the United Arab Emirates are not only working on restructuring sukuk but also on emphasizing the role of Shariah standards issued by AAOIFI in the financial industry. This involves regulating all Islamic contracts and financial instruments to ensure they comply with both the provisions of these Shariah standards and the Civil Transactions Law at the same time.

As for the second question, it is essential to distinguish between the retroactivity of legal texts and the retroactivity of judicial interpretation. The quality of judicial rulings is based on several factors: easy access to legal information, accessibility to trials through cost-effective procedures, fair trials, judicial neutrality, and well-reasoned and reasonable rulings.

Additionally, this includes ensuring consistency and unification in judicial decisions, respecting the authority of res judicata, and upholding legitimate trust or expectations in judicial rulings (Justice Association and Friedrich Ebert Foundation 2013). This last aspect typically occurs during a transitional phase, in which judicial bodies express their intention to change their perspective on a specific interpretative issue. A statement from a senior judge or the president of the Court of Cassation serves as a prior notice of an impending shift in judicial interpretation or a departure from a previous ruling.

In this regard, for example, the French Court of Cassation relies on two techniques:

• Announcing future changes in the annual report published by the court.
• Limiting the retroactive effect of changes in judicial interpretation (Molfessis 2004).

Therefore, it is possible to issue pivotal decisions that can change the applications of an existing legal system. Influential judicial interpretations can be introduced that have not previously been adopted by judicial bodies, and established and stable judicial interpretations can be reversed unexpectedly and retroactively; however, this only occurs in exceptional circumstances10. In any case, some judicial bodies follow the policies of the general assembly of the Court of Cassation, joint chambers, or mixed chambers (Tascher 2011).

Decisions that should be subject to these procedures regulate specific issues in the financial sector, which can impact the future contractual relationships between disputing parties. At the same time, these decisions represent a means of financial regulation for the relevant sector, as seen in the current case.

What supports this approach, given that we are dealing with products rooted in Shariah (and Shariah is a source of legislation in the UAE), is what Omar Ibn Al-Khattab has said in his letter on the judiciary: “Do not let a ruling you made yesterday prevent you from reconsidering it today, because reviewing the truth is better than persisting in falsehood” (Al-Qass 1971). Ibn al-Qayyim further explained this by stating “[i]t means that if you have exercised judgment in a matter and then find yourself reconsidering it, the first judgment should not prevent you from revisiting it. Jurisprudence can change, and the first interpretation should not hinder the application of the second, if it becomes evident that the second is the truth. The truth should be preferred because it is old and precedes falsehood. If the first judgment preceded the second, but the second is the truth, it is more valid than the first judgment because it is the earlier one that takes precedence over others. The first judgment does not invalidate the second; rather, reverting to it is preferable to persisting with the first judgment” (Ibn Qayyim 2003).

Therefore, the decision of the Sharjah Court or the Court of Cassation of the UAE may have set a judicial precedent and marked a turning point in the evolution of Islamic finance, positioning these courts as an attractive hub for international Islamic finance disputes.

7. Lessons Learned from the “Dana Gas” Case

7.1. Well-Defined Judicial Competence in Sukuk Disputes

The interpretation of contracts falls within a judge’s work. For instance, a sales contract can be reconsidered as a loan if the parties enter into the contract based on a sale to evade fees imposed on loans or as a partnership instead of a sale to bypass company registration rules. This allows the judge to recharacterize the contract if it becomes evident that the contracting parties have given it a specific description (the simulated contract) as a way to evade legal obligations associated with the actual contract. Moreover, a contract can be annulled if the applicable law, according to the intentions of the contracting parties, necessitates such an annulment. This is clearly illustrated in the Dana Gas case; however, the English court did not adopt this approach. Instead, it deemed the Mudarabah contract (sukuk) valid under English law, thereby requiring the parties to adhere to the terms agreed upon in the issuance prospectus.

Notably, the company in the Dana Gas case argued for the annulment of the contract based on Shariah law, a position that was previously encountered in English courts in the “Palm Sukuk” case (Hekmatyar and Parkar 2018). The English courts did not follow this approach in the case involving the sale of barrack properties in Chelsea11.

The London Court in the Dana Gas case readapted the Mudarabah sukuk according to the provisions of UAE law, despite the parties’ intention to enter into a Mudarabah contract governed by UAE law derived from Shariah principles rather than English law. The parties’ choice to grant judicial competence to the London Court was not intended to subject the contract to English law but rather to UAE law. However, granting competence to these judicial bodies was the decisive factor in the outcomes of the case and in determining the applicable law.

7.2. Applicable Law in Sukuk Disputes

It has become essential to include contractual clauses that determine local laws as the applicable law, to refer to Shariah as a source of law in civil disputes, and to include it among the sources of commercial legal norms. Relying on the principles of Shariah in vague terms does not obligate a judge to follow them as the applicable law. Therefore, it is important to emphasize the precise and clear selection of the clause or agreement regarding the applicable law (Oseni and Hassan 2015).

There has been a wave of regulation through soft legal rules in recent years. These tools encompass three essential elements (Cassin 2006):

• Their purpose is to change or direct the behavior of those to whom they apply by encouraging them to adhere to them as much as possible.
• They do not in themselves directly establish rights or obligations for those to whom they apply.
• They offer (through their content and level of development) a degree of formality and structure comparable to legal rules. Flexible rules also function as “developing binding rules”, contributing to the evolution of these rules and sometimes influencing them.

In fact, the role of these laws becomes particularly evident in the absence of a legal text or customary rule, allowing soft rules to fill the gap with the possibility of later codification (Bjorklund and Reinisch 2012). In this approach, some international Islamic financial bodies (such as the AAOIFI, in this case) have developed norms to govern Islamic financial institutions. These norms have subsequently been adopted by some central financial institutions in an attempt to regulate the Islamic financial market, on the one hand, and, on the other, rely on them as applicable laws for resolving Islamic finance disputes.

The novelty of Islamic finance compared with traditional finance has led it to operate under flexible legal frameworks. Consequently, the regulation of Islamic finance has so far been achieved by encouraging its compliance with Shariah rules. While states have the capacity to issue legal provisions and regulations to promote Islamic finance, most rules and practices in this field remain, to date, within the category of soft laws. This approach is not unique to Islamic finance but is adopted by most contemporary legal systems.

7.3. The Necessity of Developing a Legal Infrastructure in Countries Receiving Sukuk

The main challenges encountered by sukuk can be attributed to a lack of a specific legal framework in most legal jurisdictions, the different mechanisms for implementing sukuk in a municipal legal system, and divergence from Shariah text interpretation. This means that the use of these legal texts in cross-border transactions has not been fully achieved.

Therefore, civil law remains the general reference for adjudicating contractual arrangements unless there is specific legislative text addressing the matter. In this context, Shariah law serves as a supplementary official source in many legal systems and can only be invoked in the absence of specific legislation regarding the issue object of the dispute. As for commercial matters, civil law is considered the second official source of commercial law. Therefore, Shariah is an indirect source of legal norms related to commercial law and Islamic finance matters. Furthermore, the principles of Mudarabah and Ijarah, which are heavily emphasized in sukuk issuances, are regulated under civil laws inspired by Shariah. Despite this, the English court in the Dana Gas case relied on the purchase undertaking (valid under English law) to protect investors’ rights to returns, thereby excluding the application of the aforementioned civil law provisions. This calls for a reconsideration of the drafting of the offering document, particularly concerning jurisdictional rules and applicable law as complementary pillars for developing the legal infrastructure. Moreover, it is necessary to regulate the responsibility of the Shariah board or Shariah consultancy firm in these cases because it is unacceptable to cause harm to the sukuk holders through inappropriate fatwa without legal consequences.

8. Conclusions

In conclusion, this article demonstrates that the Dana Gas case constitutes a critical turning point that could be a landmark in the evolution of Islamic finance and in reinforcing the idea of maintaining economic public order and public interest. This case has generated considerable discussion from a predominantly critical perspective, with most studies focusing on violations of legal certainty and good faith in contracting, as well as raising doubts about Islamic finance contracts. However, they often overlook the positive aspects of the case and the potential impacts had the proceedings continued before the Sharjah Court. Achieving legal certainty and judicial security does not mean mitigating judges’ rights to exercise discretion and modify a contract based on the parties’ intentions while upholding the Shariah standards adopted by official bodies. One outcome of this case has been the adoption of AAOIFI standards by some central banks. Therefore, clauses that limit jurisdiction to the UAE courts (or similar jurisdictions) in international commercial contracts could be more appropriate for an emerging financial sector. These give the judge the power to interpret Shariah standards and enhance the court’s contribution to the development of Islamic international commercial contracts. Furthermore, avoiding hybrid clauses related to the applicable law will mitigate Shariah risks. This trend aligns with international developments toward adopting soft and non-state legal rules and relying on them to resolve cross-border finance disputes. Lastly, the development of the legal infrastructure in countries receiving sukuk and Islamic instruments will strengthen the legal certainty in the Islamic finance industry, thus allowing a clearer delineation of responsibilities, a matter that requires further research and analysis.