A subsidiary of Switzerland's Bank Sarasin yesterday asked a Dubai court to strike down a US$225 million (Dh826.4m) claim that it misrepresented investments to three members of a prominent Kuwaiti family. The request came during the first hearing of a case lodged in the Dubai International Financial Centre (DIFC) Courts late last year.
Rafed al Khorafi, the chairman of AM Al-Khorafi Establishment in Kuwait, along with his wife and mother, claimed investments made in 2007 were presented as ones that could "never lose money", but resulted in $75m of losses, court documents show. The family members are seeking triple damages under DIFC laws covering breach of contract, negligence and misrepresentation. Bank Sarasin-Alpen, a subsidiary of the Swiss bank, is based in the financial free zone and was the conduit through which the Khorafis made the investments, court documents show.
The allegations, however, lacked detail and should be dismissed, a lawyer for Bank Sarasin-Alpen argued at the two-day hearing, which ended yesterday. The claim, he said, read more like a narrative than a waterproof legal filing. "It's a story," said Mark Hoyle, the regional head of arbitration at Al Tamimi and Company in Dubai. "It's not a claim." But Kaashif Basit, a lawyer for the Khorafis, said in order to strike down the case the judge had to rule that it lacked any reasonable basis. The foundations of the claims were clear and if any details were lacking, the court could simply ask for more information as the trial progressed, Mr Basit said.
"We never have claimed these pleadings to be perfect, but neither do they need to be," he said. "The test is: can the case be reasonably understood?" Mr Hoyle also said the case should be dismissed because the Dubai Financial Services Authority (DFSA), the DIFC's independent regulator, had not first identified a regulatory breach. The regulation that the Kharafis alleged Sarasin violated, he said, required a prior determination of such a violation by the DFSA.
"We are not suggesting that Mr Khorafi should not be able to avail himself of the laws and regulations of the DIFC," Mr Hoyle said. "? The proper way to do it is to go to the DFSA." Mr Basit countered by saying regulations allowed either the DFSA or an aggrieved individual to bring a case before the courts. The courts, he said, could identify a breach of regulations, and no prior action by the DFSA was required.
The relevant regulation "does not say anything about the DFSA having a prior finding", Mr Basit said. Justice Tan Sri Siti Norma Yaakob, the DIFC judge hearing the case, adjourned the hearing and is expected to make a judgment within weeks on the request to strike down the case. The Khorafi's case joins a growing trend globally of investors going to court to recover losses from investments that went sour in the fallout from the financial crisis, claiming that the investments were portrayed as less risky than they actually were.