A joint venture part-owned by the largest foreign developer on The Palm Jumeirah is seeking payment of Dh920 million (US$250.4m) from Nakheel in the Dubai World Tribunal.
The Dubai property company faces a claim over the alleged non-cancellation of a deal in the biggest case so far before the Tribunal.
The claim is the second volley in an intensifying legal skirmish between Nakheel, the developer that built The Palm, and Souq Residences, the partnership behind the emirate's Golden Mile.
The Golden Mile is a string of residential buildings with offices and shops on the trunk of The Palm. It was launched as a central business and residential district with cafes and restaurants on the ground level, but many of its retail outlets now sit vacant.
Nakheel, which is owned by Dubai World, fired the first salvo against Souq Residences last November.
It went to the Tribunal to recover Dh100m it says it put towards buying the retail space in the Golden Mile before the transaction was cancelled in early 2009.
Souq Residences, set up in 2004, is a 50-50 joint venture between IFA Hotels and Resorts of Kuwait and Istithmar World, another Dubai World subsidiary. IFA, a Kuwaiti developer and hotel operator, was one of the earliest and biggest investors in The Palm.
But Souq Residences, which is run by IFA, fired back last month, according to court documents, lodging a Dh920m claim against Nakheel.
It alleges in its claim that Nakheel's agreement in July of 2008 to buy retail space in the Golden Mile project for about Dh1 billion was never actually cancelled.
Nakheel, therefore, owes the remainder of the purchase price, Souq Residences claims.
Taken together, the cases are the biggest to date for the Dubai World Tribunal, the special judicial body set up in 2009 to handle claims against the government-owned conglomerate and its subsidiaries as they undergo sweeping restructurings.
The two cases involve claims that come to more than double the sum of all other claims before the Tribunal, which amount to about $125m.
In its case, Nakheel said it agreed in 2008 to buy the retail space in the Golden Mile project, and made two Dh50m instalments towards the purchase. After the sale was cancelled in early 2009 "due to adverse market conditions", however, Nakheel said it never recouped the advance payments it put in.
"Meetings and discussions took place [early last year] to find a suitable repayment plan of the advance payments to [Nakheel]," the developer said in its claim.
No agreement could be reached, Nakheel's lawyers said, and no repayment of the advance payments had been made by Souq Residences.
But Souq Residences says in its claim that the purchase agreement was never cancelled, and that Nakheel owes it the entire Dh1.02bn price tag.
It claims Nakheel breached the terms of the sales agreement by failing to complete the purchase of the designated retail spaces and to pay the full amount due.
"The agreed purchase price was Dh1.02bn," Souq Residences claims. "As [Nakheel] has only paid the sum of Dh100m, [Souq Residences] claims the balance of Dh920.6m."
Souq Residences is also seeking an order forcing Nakheel to issue building completion certificates and no-objection certificates, permitting it to hand over completed Golden Mile buildings to purchasers. Nakheel, Souq Residences alleges in its suit, "has wrongly prevented" it from handing over apartments and selling or leasing retail and office space.
Dubai World in September reached an agreement with banks to reschedule payment of $24.9bn of debt, and Nakheel is in the middle of its own attempt to settle claims by contractors.
The developer stopped making payments to contractors after the financial crisis and a severe drop in Dubai property prices scuttled its business model.
Nakheel said recently that contractors and other trade creditors with 91 per cent of large claims against it had agreed its restructuring proposal.
Under the plan, contractors are to receive 40 per cent of what they are owed in cash and the remainder in the form of an Islamic bond that matures in five years. The company needs approval from 95 per cent of claimants to move forward.
As Nakheel inches closer to that figure, the Tribunal cases highlight the complex obligations and liabilities that lie outside of the company's dealings with contractors and banks.
In addition to working out cases filed in the Tribunal, Nakheel is trying to find common ground with individual investors in projects that have stalled. It is offering to consolidate investments in delayed or cancelled projects into ones slated to go ahead.
A trial date for the Tribunal cases has yet to be set. Nakheel and Souq Residences declined to comment, citing continuing legal proceedings.