Land designated for a mosque is at the centre of a US$68 million (Dh249.7m) dispute between a hotel developer and Nakheel, the Dubai property giant.
Greenfield Trading paid Dh200m in June 2008 for a plot in Dubai Waterfront, the Nakheel development that would create a new business and resort district.
Greenfield planned to build a mixed use hotel and resort on the site.
But two months after Greenfield bought the property, Nakheel disclosed that part of the parcel was classified as holy land and had served as a site for a mosque for 30 years, Greenfield alleges in a claim filed with the Dubai World Tribunal.
The presence of the mosque makes developing a leisure resort on the site an "impossibility", Greenfield said in a statement. The company is asking for $68m, plus "further damages to be assessed".
"Our client feels that it has exhausted all avenues to try to resolve this issue amicably and, as a last resort, has been compelled to take recourse through the Dubai World Tribunal," said Jonathon Davidson, the company's lawyer.
Nakheel did not have the legal right to sell the land for its "advertised intended purpose" because of the mosque, the suit claims.
The presence of a mosque on the site was "omitted from the original sale and purchase agreement and official plans" for the plot, Greenfield charges in the claim.
The documents produced by Nakheel were relied upon by the developer when making the purchase, according to the suit.
"The defendant further failed to disclose the 'prior use' during a number of meetings held between the claimant and the defendant prior to the date of purchase," the claim says. "This was not withstanding the fact that the defendant [Nakheel] was aware of the [mosque] prior to those meetings," the claim states.
A Nakheel spokesman declined to comment.
The ambitious Waterfront project has been stalled for two years while Nakheel regrouped in the wake of the global financial downturn.
Last week Nakheel announced the final steps of its Dh60 billion restructuring plan, including the issuance of Dh4.8bn sukuk to help to settle claims of unpaid contractors. Billed as the largest waterfront master-planned development in the world, Dubai Waterfront is scheduled to cover 1.4 billion sq ft on the western edge of Dubai, near the Jebel Ali Free Zone.
The site focuses on the "last 15km of natural coastline in Dubai" and includes portions of the Arabian canal, according to promotional materials.
The master plan created for the site by the modernist Dutch architect Rem Koolhaas attracted international media attention. Its most dramatic feature is a 44-storey sphere, which was quickly dubbed the Death Star for its resemblance to Darth Vader'sStar Wars ship.
The heart of the development is a man-made square island with streets in a rigid grid pattern designed to emulate the density of New York's central Manhattan. The master plan is designed to house 1.5 million people.
As part of its reorganisation, Nakheel restructured Dh8bn of bank debt and is officially separated from Dubai World, its former parent company.
With its restructuring complete, Nakheel said it would also restart work on several projects and plans to deliver about 8,000 homes in the next year.